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Daily Newsletter, Sunday, 10/31/2004

HAVING TROUBLE PRINTING?

The Option Investor Newsletter Sunday 10-31-2004
Copyright 2004, All rights reserved. 1 of 5
Redistribution in any form strictly prohibited.
In Section One:
Wrap: Kerry Wins!
Futures Wrap: See Note
Index Trader Wrap: TECH LEADS FOR A CHANGE
Editor's Plays: Short, Now What?
Market Sentiment: Forget it!
Ask the Analyst: Best 6 months starts in November
Coming Events: Earnings, Splits, Economic Events
Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP (view in courier font for table alignment)
******************************************************************
WE 10-29 WE 10-22 WE 10-15 WE 10-08
DOW 10027.47 +269.66 9757.81 -175.57 9933.38 -121.82 -137.45
Nasdaq 1974.99 + 59.85 1915.14 + 3.64 1911.50 - 8.47 - 22.23
S&P-100 540.65 + 15.49 525.16 - 6.64 531.80 - 6.67 - 4.64
S&P-500 1130.20 + 34.46 1095.74 - 12.46 1108.20 - 13.94 - 9.36
W5000 11068.95 +320.91 10748.0 - 90.63 10838.7 -125.85 - 94.18
SOX 412.25 + 17.09 395.16 + 13.79 381.37 - 8.15 - 12.39
RUT 583.79 + 16.02 567.77 - 0.65 569.42 - 6.23 - 9.38
TRAN 3497.42 +125.48 3371.94 + 19.26 3352.68 + 16.68 + 37.20
VXO 16.57 16.09 15.89 14.95
VXN 21.90 21.36 21.80 20.69
******************************************************************
Kerry Wins!
Jim Brown
The markets are predicting a Kerry victory but it depends
on which market you are looking at. A normally dependable
indicator says if the Dow falls in the three months prior
to the election the challenger will win 81% of the time
or 9 of the last 11 elections. The Dow lost -1.1% over
the last three months. However, that is not the final
word.
According to Forbes.com they have analyzed the trend
using not only the Dow but based on the Nasdaq, 5 of 8
years, the S&P, 8 of 11 and an average of the three gave
8 of 11 correct predictions. The most accurate was based
on the S&P gains minus the inflation rate as evidenced
by the 90-day T bill. Using this indicator there has
been a 91% success rate or correct predictions in 10 of
11 years. With the S&P up +2.5% for the last three months
and the 90-day T bill at 0.40 the result is a +2.1% S&P
indicator that says Bush will pull it out at the end.
This indicator has a 91% track record of success. Now
we know you can make any indicator predict anything if
you apply enough qualifications. I would not bet the
farm on this outcome. The electronic futures polls had
the race exactly dead even at midday on Friday with each
candidates futures contract worth $50.00. By days end
they had separated to $52 Bush, $48 Kerry. The Real
ClearPolitics.com average of all polls as of Friday
night had Bush ahead by +2%. Bottom line it remains
a dead even election and the lack of any market gains
on Friday was probably more related to the lack of a
clear leader than any other factor.
To further confuse the issue Jeremy Siegel, professor
at Wharton, highlighted some election statistics on
Friday. There have only been negative market returns
over the last 100 years under three presidents. They
were Hover, Nixon and Bush. We all understand why the
economy under Bush has performed poorly with the 9/11
attack knocking 2.5 million jobs out of the economy
and the Y2K bubble turning into a serious bear market
and a recession. Neither event was his doing and he
had no control over either. Also, in the last 100
years only TWO republicans have been unseated by a
democratic challenger. Carter beat Ford and Clinton
beat Bush. Siegel suggested it really did not matter
to the markets now on who won this election just that
it was behind us. I doubt he will find any objections
from traders.
Nasdaq Chart
Dow Chart
SPX Chart
Friday was full of economic events and the overall news
was very good for the economy. The opening salvo was the
GDP at +3.7%, which was weaker than the +4.4% expected
but better than the +3.3% number for Q2. The internals
were significantly better than the headline number with
consumer spending up +4.6%, business spending up +11.6%
and business equipment up a whopping +14.9%. This was
a very good report and the headline number would have
been much better except for the high oil prices skewing
the import numbers and the excessive inventory build in
Q2 holding down additional inventory additions in Q3.
Core inflation as measured by the PCE component rose
only +0.7% for the quarter and at the lowest rate since
1962. This is a phenomenal number and allows the Fed to
pause in the current rate hike cycle and watch for new
economic clues in 2005.
Prior to today the expectations for the eventual rate
level was something in the 3.0-3.5% range. After the GDP
and some comments from Fed Vice Chairman Roger Ferguson
that level is now drifting to the 2.5% range. This is a
big drop in expectations and the market did not react to
it on Friday probably due to the election cloud. Ferguson
said "several aspects of the current outlook lead me to
suspect that the return of the equilibrium real rate from
its currently somewhat depressed level to its long-run
value might plausibly be expected to be gradual and
attenuated compared with historical experience." In English
the rate hike pace could slow based on external conditions.
He also said "I believe that the combined force of several
factors restraining aggregate demand, would require a lower
real rate than otherwise to avoid economic slack." These
comments led analysts to believe the Fed was measuring
its current policy of continued rate hikes against the
low job growth, high oil and the potential impact on the
struggling economy. Again, the market did not react to
the slight policy shift and I believe it was the election
cloud keeping traders from seeing the light.
Another clearly visible sign of strength returning to the
economy was the Chicago PMI which soared to 68.5 and well
above the consensus estimates of only 59.7. Anything over
50 represents an expansion and the jump to 68.5 pushed it
to the highest reading since the 1980s. New orders rose
+10 points to 79.4 and production soared +21 points to
79.7. Another good sign was a substantial inventory drop
to 51.8 from 64.7 which indicates the need to ramp up the
replenishment cycle. That was the lowest reading since
April. This is a very strong report and suggests the ISM
on Monday could also be very strong. The PMI is unique to
the Chicago region but the ISM is a national view of the
same components.
The NY NAPM continued to rise with a small move to 313.7
from 310.4 in September. The NY-NAPM was not as bullish
as the Chicago PMI but still an improvement after 14
consecutive months of gains. The August 2003 number of
221.7 was the cycle low for this series and NY has been
improving ever since. The only material change was a drop
in the six month outlook from 60.0 to 50.0. This suggests
the 2005 view is starting to fade.
Consumer Sentiment took an about face from the early
reading for October and jumped to 91.7 from the drop to
87.5 on Oct-15th. The end of month rebound to 91.7 was
still a drop from the September level at 94.2 but a big
sigh of relief for analysts. Present and future conditions
both jumped over four points in the final analysis.
For the coming week we have not only the election cloud
but the closely watched ISM on Monday and the Jobs Report
on Friday. The ISM will be the more critical report this
time around simply for the election impact. Post election
the Jobs report will have far less impact on the national
scene and even a bad report could be beneficial for the
markets. In theory a bad report helps push the Fed to the
sidelines and keep rates lower for a longer period of time.
Just before the bell it was announced a new Bin Laden tape
was on the way and bonds soared and a closing rebound was
nipped in the bud. After the close the Al Qaeda leader
appeared on camera in traditional attire and without any
camo and no gun. The tape was not a cave shoot and was
much better produced. It contained negative comments
on both Kerry and Bush and references to the election.
The tape warned of more 9/11 style attacks and claimed
neither Bush or Kerry could keep America safe. The tape
was not made available until after the equity markets
closed and that blunted the impact but the campaigns
quickly picked up on the opportunity to go on the offense
against terrorism. Conventional wisdom suggests the tape
could give an edge to Bush as he has the track record for
pressing the attack against Al Qaeda. Some said the tape
also may have given Bush the edge because Osama attacked
Bush in much more detail and only mentioned Kerry. That
direct attack could have a reverse effect of suggesting
Bush has severely pressured Al Qaeda and voters could
cheer his effort. There are far too many questions and
the spin machines will be working overtime all weekend
to influence voter opinion.
Oil prices took another dive off the high board and
retreated all the way to $50 intraday before rebounding
to close at $51.75. This -10% drop from the $55.65 high
on Wednesday could have all the appearances of a break
in the trend but we only have to look back to August
when oil fell from $47 to $41 and analysts were all
predicting $35 before the election. I have believed for
several months we would see a pullback in prices after
the terrorist risk to the election has passed. The profit
taking this week allowed funds to take their gains off
the table and shift back into stocks for their year end
statements. I view any pullback in oil prices as buying
opportunities for oil stocks but I would wait for the
election to pass before jumping into new positions.
Analysts were pointing to oil as the catalyst for the
gains in equities this week. I view that as strange since
equities soared on Tuesday with oil at $55 and a day
before the actual high in oil and the big profit taking
drop. I do believe we could see a monster rally next week
if we have a successful election with a clear winner on
Wednesday and oil under $50. This would prompt further
profit taking in oil and further strong asset allocation
back into equities.
For the week the Dow gained a whopping +269 points,
+317 if you count from the 9708 low on Monday. This is
a very strong bounce and as I illustrated on Thursday
night a historical trend for mutual funds to paint the
tape for their year end on Oct-31st. Now that their year
end is over we have two trading days left before the
election is history. It will be a real test of market
strength to see if we can hold our gains until the
election results are known. The Osama tape should be
somewhat forgotten by Monday and hopefully not a factor.
The Dow has rebounded to 10000 and held there for two
days while the gains were consolidated and the October
clock expired. I fear that after the end of October
race to a milestone level which provided strong marketing
copy for end of year statements that Monday could be
not just a pause for the election event but a profit
taking episode. After three weeks of heavy selling it
may be too much to ask for the selling to be magically
over. The economics were strong on Friday and they
produced no gains despite the month end. We have seen
it many times before in far less confusing situations
where window dressing turned into undressing following
a calendar crossing.
What could hold us up is the strong historical potential
for a post election year end rally. November is the 2nd
strongest month of the year behind December making the
next 60 days very key to producing returns for funds.
Even the very cautious funds cannot afford to be out of
the market if a post election explosion occurs. Missing
the first couple days of a rally typically takes 25% of
the profit out of the eventual gains. Funds can't afford
to guess wrong. If the Dow soared another +300 points
before next Friday those out of the market would be in
a very unsatisfactory position. They can't just place
an order like you and I for a thousand shares each of
ten stocks and call it a day. If a fund gets behind the
curve and needs to buy millions of shares across dozens
or even hundreds of stocks then prices go to the moon.
It is the same as the cockroach theory. Where you see
one there are probably dozens you don't see. When one
fund is behind the curve there are likely dozens if not
hundreds also behind the curve. For an example of funds
behind the curve we only need to look at October 2002.
The Dow rebounded off the 7200 bottom to hit 8540 in
only eight days. Had you been flat at the bottom after
two months of declines totaling nearly -2000 points the
initial reaction to the first +400 point bounce in only
two days would have been to expect a pullback from the
oversold bounce. Unfortunately for those who waited there
was no pullback and six days later the Dow was another
+1000 points higher. This is a lesson that will not be
soon forgotten by thousands of fund managers.
Dow Chart - October-2002
After reviewing the chart above it may put the +300
point bounce from this week into a different perspective.
Instead of expecting a tape painting bounce to fail we
may just see a pause for the election and a bookend
rally to follow. This has been a terrible year for the
markets and most funds are at basically a breakeven for
the year if they did not play the oil rally. The SPX is
only about 20 points away from where it began 2004 and
the Dow is down about -425 points. The Nasdaq is nearing
breakeven at 2003 and just hitting that goal will only
make a new four month high. Funds need performance and
this late in the year they are going for broke. Maybe
that is a bad choice of words but you know what I mean.
They have to load the boat with every available share
and hope for a rising tide after Tuesday. They cannot
afford for other funds to capture the gains and win
the ratings race.
Conversely, should the market rocket fail to lift off
the launching pad by the end of next week there is a
serious danger of an implosion instead of an explosion.
I would dare to bet that nearly 100% of traders expect
a post election rally and should one not appear there
could suddenly be some surprised bulls. Personally I
think that Friday economics and a good ISM on Monday
will set the stage for a pretty good run but there is
always the possibility that all the bets have already
been placed. Because the expectations of a post election
rally are so strong anybody with money to invest should
already be in the market. That only leaves those who were
too afraid of an election event to chase the prices. Will
it be enough to produce another Oct-2002 bounce? I really
doubt it but until the market proves otherwise I suggest
we remain long.
The bears are not without their rally points with strong
resistance overhead on the SOX, Russell and the Wilshire.
However, one strong day like we had last week and those
bears would be racing to cover any shorts as those levels
were broken. All really strong market rallies are built
on the backs of disbelieving bears.
Wilshire Chart
SOX Chart
Russell Chart
The end of October tape painting left us with two
days to ponder our fate and adjust positions before
the election is over or at least until we hope it is
over. I would look to buy any Monday dip and keep my
stops tight until the election passes. At this point
the market is past worrying over who will win the
election and it more focused on just getting it over.
Anybody placing an election bet based on a specific
winner has already put their money on the line and we
are just waiting for the dice to be rolled. Once past
Tuesday the negative talk will be gone and sentiment,
both market and consumer should improve. Earnings are
over and the holiday spirit will begin building along
with retail sales. It should be a great time to be in
the markets but then disaster normally strikes when it
is the most unexpected. Never assume and end of year
rally is the only outcome. Hope for it, plan for it
and bet on it but always keep an exit plan in place.
The Dow and the Nasdaq are still in a long term down
trend and until that trend breaks the risk for bulls
is still high.
Enter Very Passively, Exit Very Aggressively!
Jim Brown
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FUTURES WRAP
************
Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp
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INDEX TRADER SUMMARY
********************
TECH LEADS FOR A CHANGE
By Leigh Stevens
THE BOTTOM LINE –
The blue chip weakness signaled by the recent new yearly low
close in the Dow 30 (INDU), was masking the fact that the tech-
heavy Nasdaq indices were holding up ok and were not far below
their June highs.
Tech indices led the way in the renewed rally this past week. My
take is that continued economic growth has led to the perception
that these are the only stocks much undervalued based on upside
earnings potential. Eventually, semiconductors, hardware,
software, select Internet, etc. should see earnings growth the
longer the economic expands.
The Nasdaq Composite (COMP) and Nasdaq 100(NDX) indexes look like
they could work a bit higher still - to 2000, even to around 2050
in COMP and perhaps 1520 in NDX. The S&P 100 (OEX) has some room
on the upside too, but also some tough resistance in the 546-550
zone.
FRIDAY'S CLOSING NUMBERS –
The S & P 500 Index (SPX) was up 2.7 points to 1130 and up a
substantial 3.1 % on the week (+1.3% for October). The Dow 30
Average (INDU) closed 22.9 points higher to 10,027.47. INDU
rebounded 2.75% on the week. However, unlike the broad SPX blue
chip index, the Dow lost 0.6% in October.
The Nasdaq Composite (COMP) was down slightly - off 0.7 points at
1,974.9 by the close. However, COMP rose 3.1 percent on the week,
same as the S&P 500 - but gained a far better 4.1% for the full
month (October).
FRIDAY'S TRADING NEWS –
In a mild disappointing note after such a strong week, the
Commerce Department reported that GDP grew at a 3.7% annual rate
in the third quarter, following a 3.3%. Hey, that's an increase,
right! As always in the Street of Dreams, this figure was judged
based on Economists expectations for a 4.3% growth rate.
The core inflation rate increased an annualized 0.7%, touted as
the lowest in 42 years. Yes, we have no inflation - tell it to
the Fed. Well, there is that pesky pump price marching up and up
but that's not in the "core" inflation rate. You could have
fooled me to the core due to my rising cost for fill-ups!
Bullish encouragement came next as the University of Michigan
released its consumer sentiment index - it rose to 91.7 points in
late-October from 87.5 earlier in the month. Expectations were
for a decrease, to about 85.0.
Also, a Chicago region survey of purchasing managers showed
stronger-than-anticipated expansion of business activity in
October.
OTHER MARKETS –
The dollar was down slightly again on Friday against both the
euro and the Japanese yen. The Euro hit a substantial new high
this past week, trading in the $1.27 area, with no end in sight.
Not much concern to the stock market right now, but not so great
for visitors like me with dollars to convert while on a business
trip to Spain.
There are other reasons to fear a dollar that falls too far, but
it does moderate the oil price hikes with our major trading
partners, given that oil is priced in dollars.
December crude oil futures ended up 84 cents at $51.76 a barrel
on the New York Mercantile Exchange. Funny that I would we think
that oil prices still above $50 would be encouraging! Well,
after hitting $55, it seems a bit of a relief.
Crude oil gained 5% for the month, with the longer-range
influence of China perhaps not being able to dampen its economy
overly much, keeping its energy demands strong. That plus the
usual suspects this year for supply disruptions somewhere in the
oil-rich areas, given the high demand globally, especially from
China and the U.S. - more SUV's anyone?
In a quiet bond market, the 10-year (Treasury) Note ended up 6/32
to 101 25/32, for a yield of 4.03%.
MY INDEX OUTLOOKS –
S&P 500 Index (SPX) – Daily chart:
Just as when the S&P 500 (SPX) dropped under its 21-day moving
average and couldn't rebound back above it, suggesting further
weakness, the reverse was true on the rebound back above this key
trading average and the follow through strength.
I assumed SPX was headed back toward support in the 1090 area and
might dip under even, before the next rally, but the trading
range has been narrowing some. Indecision? Of course, if we
listen the two parties, the fate of the world (for at least 4
more years) has to be settled just ahead. I'm not sure that who
wins will be as significant as the fact that the uncertainty goes
away.
I also pointed out the significance of a move through 1110
resistance (play the market for higher) for turning the chart
picture bullish again near-term.
So what now? There is a significant overhead resistance in the
1140 area. SPX either fails and reverses in this area or
achieves an upside penetration, in which case a next objective
may be to around 1150. A close just slightly over 1140 lacking
upside follow through the next day would suggest switching from a
bullish to bearish trading stance.
Of course, the recent rally in SPX could reverse at any point shy
of 1140 resistance, consistent with its pattern this year of
going only to rally highs lower than the one that preceded it.
Stay tuned!
Meanwhile, bullish sentiment is building to that "over-confident"
stage that sets up the next decline so to speak. We're close,
but haven't seen that one-day reading yet that would put my
indicator in bearish warning territory.
S&P 100 Index (OEX) – Daily chart:
I had a downside target to the 52 area and the S&P 100 (OEX) got
to 522 - close enough. Near support looks like 530-532. Near
resistance is at 545-546, at its down trendline and 200-day
moving average respectively. The June rally peak implies major
resistance at 558. Only a close over this area breaks the
bearish pattern of lower (up) swing highs.
I suggested exiting puts in the 520 area. Hope you did and
perhaps went the other way into OEX calls for a trade. OEX was
oversold enough finally last week on Monday's close to make a
continued put play risky.
Dow 30 Average (INDU) - Daily chart:
Instead of a move to the lower end of the well-defined downtrend
channel, the Dow 30 (INDU) managed to stay in the area of its
prior early-August lows and rebounded before touching 9700. (9600
was my "worst case" downside objective.)
10,220-10,240 is resistance implied by the top of INDU's
downtrend channel and the prior rally highs. I think it's
doubtful that the Dow will close above the top of its channel.
Not for more than a day especially - two consecutive days changes
this picture. If so, next resistance is in the 10,350 area, at
the cluster of prior highs from early-September.
The Dow did get into my oversold zone and if you look at the (14-
day) RSI chart and reversals/rallies this year at least have been
fairly consistent when this indicator has reached the oversold
area as highlighted above.
Nasdaq Composite (COMP) Index – Daily chart:
After holding in the area of (or not far under) its 21-day
average, rally potential was improved and came about last week.
I figure next resistance as the 2000 area based on the
psychological importance of this big round number. Technically,
key resistance is assumed to be around 2050, the area of the
late-June top.
Support is seen at 1900-1905 or just under at the minor up
trendline intersecting at 1880 currently.
I had pegged 1900-1910 as key near support, so I hope those
playing the put side took action when the strong rally developed
after COMP reached this area - oil backing off from the $55 level
was a help too!
Nasdaq 100 (NDX) Index – Daily chart:
Holding, then rebounding from the low end of its recent trading
range, then piercing the top end of this same range kept the Nas
100 (NDX) chart bullish. 1520-1530 looks to be a possible
objective. 1523 is resistance implied by the prior NDX top.
Key technical support is at 1420, at the up trendline.
The RSI Indicator was diverging from price action and gave a
minor bearish outlook - it wasn't the most pronounced divergence
but it was there, proving once again that patterns always have
their exceptions.
At this point, I don't want to overstay in calls if there is any
sign of a double top shaping up - watch for signs of a rally that
stops at or short of the prior top (at 1523).
Nasdaq 100 tracking Stock (QQQ) Daily chart:
QQQ has gotten above the down trendline the way I've drawn it as
touching the greatest number of highs. If I constructed it
through just the intraday highs, QQQ has gotten to this
resistance trendline, but not above it.
An even more key technical level is the prior 37.9 high. Failure
in this area sets up a possible double top. Conversely, clearing
this prior high sets up a possible re-test of the early-year peak
in the 38 area. Stay tuned for what's next.
Election and terror jitters abound and Tuesday (election day) is
often a "change" point - if the Q's rally into Tuesday, I'm
inclined to go the other way and exit calls and the stock and
play the stock for another pullback and continuation of the back
and forth trading range.
35.25-35.30 is first support, at the low end of the recent range.
Next is support implied by the last downswing low at 34.23.
I've figured QQQ to be in a 34-37 trading range, maybe that will
be expanded to 38 on the upside.
Volume tapered off after the strong Wed. rally, with On Balance
Volume (OBV) also turning down - not the best sign for a renewed
bull market trend. Still a mixed picture - one seeming to
continue to offer opportunities on both sides of the market.
Good Trading Success!
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**************
Editor's Plays
**************
Short, Now What?
The XLE rose to a high of $36.13 on Wednesday before
the bottom fell out on the China news. As you probably
already know from my wraps I don't expect oil to stay
down very long. I was looking for a post election dip
and we are three days away from that possibility.
Assuming there is no terrorist event around the
election most investor eyes will move to equities
and away from "overpriced" oil.
The XLE put play was triggered on Thursday morning
with a trade at $35 and the price of the Dec-$35 Put
XLE-XI was $1.25 at the time. Because the Wednesday
drop was so sharp the premiums inflated on the sharp
increase in volatility. They were as low as 80 cents
the prior Friday. Sometimes things just don't work
out as we expect.
The profit target is $32 and I am going to lower the
stop to $36.25. Move the stop to $35.50 with a trade
at $34.50.
Initial recommendation:
http://members.OptionInvestor.com/editorplays/edply_101704_1.asp
XLE Chart
************
Open plays:
************
MRK Put $31.31
** Stop $33.00 ** (lowered)
** Target $25.00 **
Jan-2006 $25 LEAP Put WMR-ME
Initial recommendation:
http://members.OptionInvestor.com/editorplays/edply_101004_1.asp
***********************
XMSR Call $32.47
** Stop $30.00 ** (raised)
** Target $35.00 **
XMSR slowed its climb in advance of the SIRI earnings
last week. Sirius missed earnings and posted a bigger
than expected loss. XMSR held its ground. XMSR earnings
are next Thursday and good news compared to the SIRI
bad news could really fuel the next bounce. A post
election rally would not hurt either.
Earnings are Nov-4th
JAN-$30 Call QSY-AF cost 2.75 currently $4.10
JAN-$32 Call QSY-AZ cost 1.75 currently $2.60
Initial recommendation:
http://members.OptionInvestor.com/editorplays/edply_100304_1.asp
*********************
PVN Call Update $15.56
We suffered a setback in July and another in August but
PVN is finally back on track and only 45 cents from a
new 52-week high. The target remains $20.
PVN beat earnings estimates of 27 cents last week with
a blowout 34 cents and raised full year estimates from
$1.00 to $1.15. It appeared to be the target of a fund
on Friday with a strong spike beginning at 1:PM that
lasted into the close. Volume rose +25% for the day.
Jan-$15 Call PVN-AC cost 1.05, currently $1.25
Initial recommendation:
http://members.OptionInvestor.com/editorplays/edply_061304_1.asp
****************
MARKET SENTIMENT
****************
Forget it!
- J. Brown
It was a busy day on Friday. The +3.7% GDP number came in less
than the expected +4.3% growth rate but above the previous
reading's +3.3% rate. Consumer sentiment soared from 87.5 to
91.7 when economists were looking for a drop to 85. Plus, the
PMI index vaulted to a very strong reading, which is a nice
change from the pattern of positive but slow growth economic
data. After the closing bell a new Osama Bin Laden tape surfaced
just before the election, which could raise terror fears when
combined with the earlier English speaking terror tape released
this past week.
Yet through it all investors are focused on one thing. Forget the
GDP. Forget consumer sentiment. Forget oil near $50 a barrel.
Forget the PMI and forget Osama. Right now the markets are
focused on Tuesday's election and only Tuesday's election. This
alone is likely to keep trading somewhat subdued for the next two
sessions.
You've heard it before and you'll probably hear it again. The
markets hate uncertainty. Right now there couldn't be much more
uncertainty about who will win Tuesday's race. With that in mind
I think stocks did pretty well last week. However, imagine the
uncertainty if there is no clear winner on Tuesday night? That's
right, if the election is tied up in recounts and lawsuits for
the next couple of months there could be no post-election rally.
Let's assume, no, let's hope that there is a winner come
Wednesday morning. If that is the case then we could be in for a
strong year-end. Historically we're stepping into the best two
months of the year through November and December.
Keep your fingers crossed for a strong turn out on Tuesday and
get out there and vote!
-----------------------------------------------------------------
Market Averages
DJIA ($INDU)
52-week High: 10753
52-week Low : 9497
Current : 10027
Moving Averages:
(Simple)
10-dma: 9903
50-dma: 10109
200-dma: 10257
S&P 500 ($SPX)
52-week High: 1163
52-week Low : 1018
Current : 1130
Moving Averages:
(Simple)
10-dma: 1111
50-dma: 1115
200-dma: 1119
Nasdaq-100 ($NDX)
52-week High: 1559
52-week Low : 1301
Current : 1486
Moving Averages:
(Simple)
10-dma: 1459
50-dma: 1419
200-dma: 1438
-----------------------------------------------------------------
CBOE Market Volatility Index (VIX) = 16.27 +0.88
CBOE Mkt Volatility old VIX (VXO) = 16.57 +1.11
Nasdaq Volatility Index (VXN) = 21.90 +0.65
-----------------------------------------------------------------
Put/Call Ratio Call Volume Put Volume
Total 0.73 768,397 561,320
Equity Only 0.60 629,879 378,292
OEX 0.88 18,563 16,120
QQQ 1.25 61,220 76,802
-----------------------------------------------------------------
Bullish Percent Data
Current Change Status
NYSE 64.0 + 0.2 Bear Correction
NASDAQ-100 52.0 + 1 Bull Alert
Dow Indust. 50.0 - 0 Bear Confirmed
S&P 500 62.0 + 0.6 Bear Correction
S&P 100 60.0 + 0 Bear Correction
Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart. Readings above 70 are considered overbought, and readings
below 30 are considered oversold.
Bull Confirmed - Aggressively long
Bull Alert - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert - Take defensive action if long
Bear Confirmed - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend
-----------------------------------------------------------------
5-dma: 0.85
10-dma: 0.94
21-dma: 1.01
55-dma: 1.02
Extreme readings above 1.5 are bullish, and readings below .85
are bearish. These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.
-----------------------------------------------------------------
Market Internals
-NYSE- -NASDAQ-
Advancers 1554 1504
Decliners 1234 1535
New Highs 166 119
New Lows 24 37
Up Volume 1052M 773M
Down Vol. 722M 831M
Total Vol. 1823M 1642M
M = millions
-----------------------------------------------------------------
Commitments Of Traders Report: 10/26/04
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.
Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.
S&P 500
Commercial traders don't seem willing to place any big
directional bets ahead of the Nov. 2nd election. The longs
and shorts are pretty much dead even. Small traders are
also narrowing their bullish bias a bit.
Commercials Long Short Net % Of OI
10/05/04 421,217 435,736 (14,519) (1.7%)
10/12/04 423,472 436,780 (13,308) (1.5%)
10/19/04 432,945 441,041 ( 8,096) (0.1%)
10/26/04 441,263 445,992 ( 4,729) (0.0%)
Most bearish reading of the year: (111,956) - 3/06/02
Most bullish reading of the year: 23,977 - 12/09/03
Small Traders Long Short Net % of OI
10/05/04 137,210 114,489 22,721 9.0%
10/12/04 139,175 113,903 25,272 9.9%
10/19/04 147,148 124,827 22,321 8.2%
10/26/04 138,201 121,275 16,926 6.5%
Most bearish reading of the year: (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02
E-MINI S&P 500
Commercials have added to their longs and reduced some shorts
but they remain strongly net bearish here. Small traders
reduced both their longs and shorts with almost no change in
their bias.
Commercials Long Short Net % Of OI
10/05/04 248,190 476,608 (228,418) (31.5%)
10/12/04 258,457 517,805 (259,348) (33.4%)
10/19/04 264,860 531,541 (266,681) (33.4%)
10/26/04 276,128 509,552 (233,424) (29.7%)
Most bearish reading of the year: (354,835) - 06/17/03
Most bullish reading of the year: 133,299 - 09/02/03
Small Traders Long Short Net % of OI
10/05/04 308,021 80,373 227,648 58.6%
10/12/04 309,720 62,502 247,218 66.4%
10/19/04 353,903 66,027 287,876 68.5%
10/26/04 345,908 64,061 281,847 68.7%
Most bearish reading of the year: (77,385) - 09/02/03
Most bullish reading of the year: 449,310 - 06/10/03
NASDAQ-100
There is still very little change in commercials' NDX positions.
Actually there is very little change in the small-traders'
positions too.
Commercials Long Short Net % of OI
10/05/04 55,640 32,872 22,768 25.7%
10/12/04 52,572 32,775 19,797 23.2%
10/19/04 52,630 31,940 20,690 24.4%
10/26/04 53,233 31,323 21,910 26.2%
Most bearish reading of the year: (21,858) - 08/26/03
Most bullish reading of the year: 25,160 - 06/01/04
Small Traders Long Short Net % of OI
10/05/04 12,254 30,693 (18,439) (42.9%)
10/12/04 8,756 24,400 (15,644) (47.2%)
10/19/04 10,462 25,243 (14,781) (41.3%)
10/26/04 10,521 25,388 (14,867) (42.8%)
Most bearish reading of the year: (20,270) - 06/01/04
Most bullish reading of the year: 19,088 - 01/21/02
DOW JONES INDUSTRIAL
Commercial traders hedged their bets even more ahead of
the Nov. 2nd election so there is no clear up or downside
bias. Small traders remain net bullish after the big
change two weeks ago.
Commercials Long Short Net % of OI
10/05/04 27,498 25,772 1,726 3.2%
10/12/04 24,150 22,849 1,301 2.7%
10/19/04 25,385 24,213 1,172 2.3%
10/26/04 25,707 24,855 852 1.6%
Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 15,135 - 10/16/01
Small Traders Long Short Net % of OI
10/05/04 5,531 5,539 ( 8) ( 0.0%)
10/12/04 8,814 9,167 ( 353) ( 1.9%)
10/19/04 8,327 6,015 2,312 16.1%
10/26/04 8,405 6,336 2,069 14.3%
Most bearish reading of the year: (12,106) - 3/09/04
Most bullish reading of the year: 8,523 - 8/26/03
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Best 6 months starts in November
The "best six months" for equities begins in November and runs
through the end of April, where the Russell 2000 Index ($RUT.X)
has shown a historical tendency to gain an impressive 12.9% from
November through May.
I had some questions that I wanted answered. I should say, I
just wanted more information, and some type of "proof" that a
historical statistic could stand the test of time.
I'm not from the "show me state" of Missouri, but those of you
that have followed my writings know that I'm the type of trader
and investor that is always back testing things, to try and make
more certain that we're not going off on a wild goose chase.
Let me first say, I am a BIG BELIEVER in history. Those that
don't learn from history, are often doomed to repeat it. There.
I've disclosed my bias.
Today I'm going to at least test the statistical theory that the
Stock Trader's Almanac discusses on page 118 of this year's
(2004) Almanac.
In 1968, the Stock Trader's Almanac featured a study by Merrill
Lynch. The study showed that buying aerospace, agriculture, air
conditioning, eastern railroads, fire/casualty insurance, machine
tools, and meatpacking sectors around September or October, and
selling in the first few months of 1954-1964 years gained more
that triple the profit than holding them for ten years.
Years later, Jon D. Markman, senior investment strategist and
portfolio manager at Pinnacle Investment Advisors, took some of
Merrill Lynch's findings a step further, looking at various
sectors and even some major market averages, in search of
seasonal patterns.
Today's article focus is the seasonal tendency for the Russell
2000 Index ($RUT.X) to gain 12.9% from November through May.
Some investors/traders do not believe that BULLISH history can be
used to profit in the FUTURE. Some reasons for not believing
that past BULLISH history will be duplicated in the future are as
follows.
Times are different now. Things are worse today than they were
in the past. The deficit is too large. Interest rates are too
high. It's an election year. Terrorism is too much of a threat.
We're at war.
I agree. Things are different today, this week, this month, this
year, this decade. Some things are better. Some things are
worse.
In the following weekly interval chart of the Russell 2000 Index
(RUT.X), I'm going to look at the last four years of trade
history for the Russell 2000 Index.
Here are some things I thought of as major events the past four
years.
November 2000: George W. Bush was elected President of the
United States of America.
January 2001: George W. Bush takes the oath of office to become
the 43rd President of the United States of America.
March 2001: Many economists believe the world's largest economy
sank into a recession, ending 10 years of growth that was the
longest expansion on record in the United States.
September 2001: Terrorists attacked various targets in the
United States of America.
March 2003: United States and coalition forces attack Iraq.
There are other events that we could consider major. The Enron
scandal, corporate distrust.
For some investors, any one of the above dates, may have been a
good reason NOT to try and profit from a BULLISH historical
tendency.
In the following chart, I will outline a BULLISH trade for the
Russell 2000 Index ($RUT.X). Things are different today than
they were in 1968 when the Stock Trader's Almanac featured
Merrill Lynch's study. Today we have computerized bar charts,
with moving averages, oscillators and retracement brackets.
Trade outline for conservative bull: Should the Russell 2000
Index (RUT.X) 583.79 close above 600.00 on a Friday, place an
order to buy at the open the following Monday. Target a 12.9%
gain to 659 before June 1, 2005.
Russell 2000 Index ($RUT.X) Chart - Weekly Intervals
A weekly interval bar chart allows us to look at the past four
years of trade. Horizontal PINK lines extend from the first
trading day of November and extend to the last day of trading in
May.
BLUE retracement brackets are anchored at the approximate closing
value for the last day of trade in October and have been extended
higher to reflect a 12.9% gain from the October close.
Starting from the left of the chart (first BLUE retracement),
many economists believe the economy was slipping toward
recession, where many economists now believe an official
recession began in March 2001. The Russell-2000 Index (RUT.X)
opened November's trade at 498, and close at 496 on May 31, 2001.
The historical average gain of 12.9% was never challenged. A
peak decline of 16% was found instead.
Important technical observations Nov. 2000 to May 2001: Weekly
MACD oscillator was bearish with MACD below its Signal (red
line). As time passed, MACD fell below its zero level,
suggesting further bearishness. I looked closely, and the RUT.X
NEVER showed a FRIDAY close above its 19.1% retracement of
510.00. Had a trader/investor waited to enter a bullish trade on
MONDAY, after a FRIDAY close above that 19.1% retracement level,
a bullish trade would NEVER have been initiated. (see earlier
trade setup for a November 2004-May 2005 seasonal play).
Let's move to the Nov. 2001-May 2002 period, just after
terrorists attacked targets in the U.S..
Important technical observations Nov. 2001-May 2002: November
trade opens at the 428 level. MACD is below Signal at beginning
of the month, and MACD is below the zero level. Bullish caution
is advised under this oscillator setup. Three weeks later, MACD
crosses above Signal, suggest some resumption of strength. The
SECOND weekly bar closes decimals BELOW its 19.1% retracement of
439. The THIRD weekly bar closes ABOVE its 38.2% retracement of
449. The RUT.X trades, then exceeds a historical 12.9% average
gain if taken from its October close of 428 on April 17, when the
RUT.X traded an intra-day high of 523. The RUT.X closed at 487
on May 31, 2002, a 13.7% gain from its October 2001 close.
Let's move to the Nov. 2002-May 2003 period. The U.S. is at war
in Iraq.
Russell 2000 Index ($RUT.X) Chart - Weekly Intervals
Important technical observations Nov. 2002-May 2003: WEEKLY MACD
oscillator was cautiously bullish, where MACD was above its
Signal, but still below zero. On Friday, November 1, 2002, the
RUT.X saw a close ABOVE its 19.1% retracement of 382. Prior to
achieving a historical average gain of 12.9%, the RUT.X rose to
412, but then fell as low as 343, an 8% decline from its October
close as U.S. and coalition forces liberated Iraq. MACD wavered
at its Signal. A weekly "doji" was found at that pullback,
resolution was to the upside, and the RUT.X went on to achieve
its historical average gain of 12.9%. On Friday, May 30, 2003,
the RUT.X closed at 441, a 17.9% gain from its October close of
374. Note the strength of the move as MACD rises above its zero
level.
Let's move to the Nov. 2003-May 2004 period. The U.S. is at war
in Iraq.
Important technical observations Nov. 2003-May 2004: The RUT.X
has surged roughly 173 points, or 48% since a weekly "doji" was
formed as U.S. and coalition forces attempts to liberate Iraq.
MACD is above zero, but wavering at Signal. On Friday, November
7, the RUT.X closes ABOVE its 19.1% retracement at 543. On
Monday morning a bullish order would have been placed at the open
of 543. The RUT.X proceeded to fall to a relative low of 520
over the course of the next 7 sessions, but rebounds strong from
its rising 50-day SMA (10-week SMA). The RUT.X barely exceeds its
historical 12.9% average seasonal gain to 596. On Friday May 28,
2004, the RUT.X closes at 568, a 7.5% gain from its October 2003
close of 528.
Let's move to Nov. 2004-May 2005 period. The U.S. is at war in
Iraq. U.S. Election Day is Tuesday, November 2, 2004.
Important technical observations Nov. 2004-May 2005: Seven (7)
weeks ago, MACD moved above its Signal. Six (6) weeks ago, MACD
moved above its zero level, and this oscillator suggests
bullishness building. As of Friday's close (10/29/04) the
RUT.X's 50-day SMA is rising at 568, but still just below its
200-day SMA of 570.
A FRIDAY CLOSE above the 600 level could begin to suggest
seasonal bullish tendencies unfolding, where a historical gain of
12.9% on average could have the RUT.X trading 659 on or before
May 31, 2005.
It is getting very late and deadline for this column is fast
approaching.
The historical bullish seasonal trade for the RUT.X is at our
doorstep. I wanted to cover the possibility of a Russell-2000
Growth Index ($RUO.X) versus a Russell-2000 Value Index ($RUJ.X),
whereby analyzing relative strength, we might look to
"outperform," the more blended Russell 2000 Index, by selecting a
"growth" or "value" strategy.
I'm going to quickly show you that "value" has been the stronger
play among the small cap Russell 2000 longer-term as depicted by
the 200-day SMA, but there is some sign that "growth" is starting
to outperform.
The following chart is a weekly interval chart, where I compare
the RELATIVE STRENGTH of the Russell 2000 Value Index ($RUJ.X)
versus the Russell 2000 Index ($RUT.X), which is a composition of
"growth" and "value."
If you never believed that "value" could outperform "growth,"
you'd better find a sturdy chair and sit down.
Relative Strength Chart of Russ. Value vs. Russell 2000
I marked the beginning of a seasonal bullish period with GREEN
bars and the end of the seasonal period with PINK bars. The four
(4) periods covered are the same periods discussed above.
It was the Nov. 2000 to May 2001 period where the Russell 2000
Index (RUT.X) had some "trouble" and didn't come close to
performing up to its historically seasonal bullish average gain
of 12.9%. But look at the above relative strength chart, where
the Russell 2000 Value Index ($RUJ.X) showed some impressive
relative strength.
I was sitting down, luckily. I went back and checked the bar
chart of the $RUJ.X and this bugger rose an incredible 15% from
its October 2000 close of 535 to its May 31, 2001 close of 620.
I didn't know this until I was writing this column. I'm amazed!
In the past four (4) seasons, value has outperformed growth 3 of
the 4 times.
Now I want to focus on Nov. 2002 to May 2003 period. That's when
the U.S. was just beginning war in Iraq. During this season,
value underperformed growth. Not by a lot, but it was probably
more profitable over the entire season to have been positioned in
growth.
As I study that period closer, because it showed DIVERGENCE from
the past, I see some SIMILARITY developing as the 2004-2005
season begins. The SIMILARITY is only due to the relative
strength slipping below its intermediate-term 10-week SMA (50-day
SMA).
Now, the Stock Trader's Almanac does not discuss any type of
seasonal average return for "value" or "growth" as it relates to
the Russell 2000, but I would think a trader/investor could
follow the same technical analysis use above, to derive a bullish
entry point.
A SIMPLER way would be to forget about trying to derive an action
point, but leg into (dollar cost average) a bullish position. I
(Jeff Bailey) would wait until after the U.S. elections, just to
try and make sure we don't get stuck in a "voter recount" for a
couple of weeks, which might create some uncertainty in the
markets.
I outlined a strategy whereby a trader that has $10,000 of
capital (round number as an example, $1,000 is fine too) might
take $2,500 (1/4 of $10,000) or $5,000 (1/2 of $10,000) and buy
"growth" to begin with. An options trader may buy just 1 call
option in the Russell 2000 Growth Index ($RUO.X) 301.45 to begin
with.
Then sit back and wait a week or two, see how things go, but use
the above 4-year analysis as a helpful guide.
Equity traders/investors!!!! Remember the June 15, 2003 Ask the
Analyst column titled "Sector/Index trading with HOLDRs and
iShares."
Those looking to play a seasonal bullish trend in the Russell
2000 will look at the Russell 2000 Index Fund (AMEX:IWM) $116.19.
Those looking to implement relative strength analysis will find
the Russell 2000 Growth Index (AMEX:IWO) $60.00 or the Russell
2000 Value Index (AMEX:IWN) $174.20 useful securities.
Jeff Bailey
*************
COMING EVENTS
*************
-----------------
Earnings Calendar
-----------------
*This is not a complete list. We only try and highlight the
more significant earnings reports.
Symbol Co Date Comment EPS Est
------------------------- MONDAY -------------------------------
ABMD ABIOMED Inc. Mon, Nov 01 Before the bell -0.03
ACDO Accredo Health Mon, Nov 01 Before the bell 0.36
ASF Administaff Mon, Nov 01 Before the bell 0.11
AGN Allergan Mon, Nov 01 ----- n/a ----- n/a
ALO Alpharma Mon, Nov 01 After the market n/a
AVNX Avanex Corp. Mon, Nov 01 After the market -0.15
CHK Chesapeake Energy Mon, Nov 01 After the market 0.30
NNN Comm. Net Lease Rlty Mon, Nov 01 Before the bell 0.36
CTV CommScope Mon, Nov 01 After the market 0.20
DADE Dade Behring Mon, Nov 01 Before the bell 0.36
DECA Decoma Intl Mon, Nov 01 After the market 0.15
DRCT Direct General Mon, Nov 01 After the market 0.62
ETM Entercom Comm. Mon, Nov 01 Before the bell 0.40
FFG FBL Financial Grp Mon, Nov 01 After the market 0.45
FWHT FindWhat.com Mon, Nov 01 After the market 0.14
FHCC First Health Mon, Nov 01 ----- n/a ----- 0.32
HUM Humana Inc. Mon, Nov 01 After the market 0.44
IVX Ivax Mon, Nov 01 Before the bell 0.21
KRON Kronos Inc Mon, Nov 01 After the market 0.50
LZ Lubrizol Mon, Nov 01 Before the bell 0.75
MVSN Macrovision Mon, Nov 01 After the market 0.19
MECA Magna Entertainment Mon, Nov 01 After the market n/a
MLM Martin Marietta Mat. Mon, Nov 01 Before the bell 1.02
MXIM Maxim Integrated Pr. Mon, Nov 01 After the market 0.42
MNT Mentor Mon, Nov 01 After the market 0.28
MTLM Metal Mngmt Mon, Nov 01 Before the bell 0.72
NAVI Navisite Mon, Nov 01 ----- n/a ----- n/a
NBIX Neurocrine Biosci. Mon, Nov 01 After the market -0.39
CHUX O'Charleys Inc Mon, Nov 01 Before the bell 0.20
ORBK Orbotech Mon, Nov 01 Before the bell 0.29
PAAS Pan American Silver Mon, Nov 01 Before the bell 0.03
PDLI Protein Design Labs Mon, Nov 01 After the market -0.21
RUBO Rubios Restaurants Mon, Nov 01 After the market 0.15
SCLN Scicline Pharma Mon, Nov 01 Before the bell -0.11
SGMS Scientific Games Mon, Nov 01 After the market 0.21
SPW SPX Corp Mon, Nov 01 Before the bell 0.89
SWC Stillwater Mining Mon, Nov 01 ----- n/a ----- 0.24
SYY Sysco Corp Mon, Nov 01 Before the bell 0.35
TLM Talisman Energy Mon, Nov 01 ----- n/a ----- 0.40
XL XL Capital Ltd Mon, Nov 01 After the market -0.53
------------------------- TUESDAY ------------------------------
CTAC 1-800 Contacts, Inc. Tue, Nov 02 After the market n/a
AETH Aether Systems Inc. Tue, Nov 02 After the market n/a
ABC AmeriSource Bergen Tue, Nov 02 Before the bell 0.77
AMLN Amylin Pharma. Tue, Nov 02 Before the bell -0.39
BMC BMC Software Tue, Nov 02 Before the bell 0.14
CDIS Cal Dive Intl Tue, Nov 02 After the market 0.49
CERG Ceres Group Tue, Nov 02 After the market 0.14
CLX Clorox Tue, Nov 02 Before the bell 0.54
CCRT CompuCredit Tue, Nov 02 After the market 0.51
EMR Emerson Electric Tue, Nov 02 Before the bell 0.79
EXPD Expeditors Intl Tue, Nov 02 Before the bell 0.39
IGT Intl. Game Tech. Tue, Nov 02 Before the bell 0.33
ITRI Itron, Inc. Tue, Nov 02 After the market 0.28
LAF Lafarge N. America Tue, Nov 02 After the market 2.12
LNC Lincoln National Tue, Nov 02 After the market 0.94
MAS Masco Tue, Nov 02 Before the bell 0.63
MBI MBIA Inc. Tue, Nov 02 Before the bell 1.32
NBL Noble Energy Tue, Nov 02 Before the bell 1.13
OII Oceaneering Intl Tue, Nov 02 After the market 0.49
PZZA Papa John's Intl Tue, Nov 02 After the market 0.50
PER Perot Systems Tue, Nov 02 Before the bell 0.22
PLA Playboy Enterprises Tue, Nov 02 Before the bell 0.04
PCLN Priceline.com Tue, Nov 02 After the market 0.27
PRU Prudential Tue, Nov 02 After the market 0.77
HOOK Redhook Ale Brewery Tue, Nov 02 After the market n/a
RKT Rock-Tenn Co Tue, Nov 02 Before the bell 0.27
RYAAY Ryanair Holdings Tue, Nov 02 During the market n/a
THC Tenet Healthcare Tue, Nov 02 Before the bell -0.05
WEC Wisconsin Energy Tue, Nov 02 Before the bell 0.44
------------------------ WEDNESDAY -----------------------------
AAP Advance Auto Parts Wed, Nov 03 After the market 0.68
DOX Amdocs Ltd Wed, Nov 03 After the market 0.30
ADRX Andrx Corp Wed, Nov 03 ----- n/a ----- 0.31
BLDP Ballard Power Wed, Nov 03 ----- n/a ----- -0.33
BNT Bentley Pharma. Wed, Nov 03 Before the bell 0.07
BJS BJ Services Co Wed, Nov 03 ----- n/a ----- 0.55
SAM Boston Beer Co Wed, Nov 03 During the market 0.24
BOBJ Business Objects Wed, Nov 03 After the market 0.18
CNQ Canadian Nat. Resrc. Wed, Nov 03 Before the bell 0.69
CPC Central Parking Wed, Nov 03 ----- n/a ----- -0.03
CEPH Cephalon Inc. Wed, Nov 03 After the market 0.67
CI Cigna Wed, Nov 03 Before the bell 1.36
DVA DaVita Wed, Nov 03 Before the bell 0.52
DF Dean Foods Wed, Nov 03 Before the bell 0.45
DUK Duke Energy Wed, Nov 03 Before the bell 0.38
EDMC Education Mgmt Corp Wed, Nov 03 After the market 0.08
EDS Electronic Data Sys Wed, Nov 03 After the market 0.08
ESRX Express Scripts Wed, Nov 03 After the market 0.98
FSH Fisher Scientific Wed, Nov 03 After the market 0.74
IACI InterActiveCorp Wed, Nov 03 Before the bell 0.21
JUPM Jupiter Media Wed, Nov 03 After the market 0.12
KOSP Kos Pharmaceuticals Wed, Nov 03 Before the bell 0.74
NTES Netease.com Wed, Nov 03 After the market 0.36
NICE NICE Systems Wed, Nov 03 Before the bell 0.26
PHS PacifiCare Health Wed, Nov 03 Before the bell 0.87
PDII PDI, Inc. Wed, Nov 03 After the market 0.33
RL Polo Ralph Lauren Wed, Nov 03 Before the bell 0.73
QCOM Qualcomm Inc. Wed, Nov 03 After the market 0.29
RAH Ralcorp Holdings Wed, Nov 03 ----- n/a ----- 0.39
COL Rockwell Collins Wed, Nov 03 Before the bell 0.45
SONS Sonus Networks Wed, Nov 03 After the market 0.02
TTEC TeleTech Holdings Wed, Nov 03 After the market 0.07
BCO The Brink's Co Wed, Nov 03 Before the bell 0.41
EL The Estee Lauder Co Wed, Nov 03 Before the bell 0.37
PMI The PMI Group Wed, Nov 03 Before the bell 1.00
TWX Time Warner Inc. Wed, Nov 03 Before the bell 0.14
TWTC Time Warner Telecom Wed, Nov 03 After the market -0.27
TOM Tommy Hilfiger Wed, Nov 03 ----- n/a ----- 0.66
UNM UnumProvident Corp. Wed, Nov 03 After the market 0.41
VARI Varian Inc. Wed, Nov 03 After the market 0.46
VSH Vishay Intertech. Wed, Nov 03 Before the bell 0.14
WTW Weight Watchers Intl Wed, Nov 03 After the market 0.40
WWCA Western Wireless Wed, Nov 03 ----- n/a ----- 0.53
UBET Youbet.com Wed, Nov 03 After the market 0.03
------------------------- THUSDAY -----------------------------
TFSM 24/7 Real Media Thr, Nov 04 After the market 0.00
AL Alcan Inc. Thr, Nov 04 ----- n/a ----- 0.69
AMSC American Supercond. Thr, Nov 04 Before the bell -0.21
ANPI Angiotech Pharma. Thr, Nov 04 After the market 0.26
ATAR Atari Inc. Thr, Nov 04 After the market -0.19
BRL Barr Pharmaceuticals Thr, Nov 04 Before the bell 0.49
BE BearingPoint, Inc. Thr, Nov 04 Before the bell 0.06
BDX Becton Dickinson Co Thr, Nov 04 Before the bell 0.68
BVF Biovail Corp. Thr, Nov 04 ----- n/a ----- 0.37
BRKS Brooks Automation Thr, Nov 04 ----- n/a ----- 0.31
CPN Calpine Corp Thr, Nov 04 Before the bell 0.17
CHINA Chinadotcom Thr, Nov 04 Before the bell 0.05
CQB Chiquita Brands Intl Thr, Nov 04 After the market 0.34
CNXT Conexant Systems Thr, Nov 04 ----- n/a ----- -0.02
CSR Credit Suisse Group Thr, Nov 04 Before the bell n/a
CMLS Cumulus Media Thr, Nov 04 Before the bell 0.13
CVX CVS Corp Thr, Nov 04 Before the bell 0.41
DTE DTE Energy Thr, Nov 04 After the market 0.59
EELN E-Loan Thr, Nov 04 ----- n/a ----- 0.00
RDEN Elizabeth Arden Thr, Nov 04 ----- n/a ----- 0.13
ENZN Enzon Pharma. Thr, Nov 04 After the market 0.02
ESPD eSpeed, Inc. Thr, Nov 04 After the market 0.10
FS Four Seasons Hotels Thr, Nov 04 Before the bell 0.29
HANS Hansen Natural Thr, Nov 04 ----- n/a ----- n/a
HIG Hartford Financial Thr, Nov 04 After the market 0.69
THX Houston Exploration Thr, Nov 04 Before the bell 1.49
ICOS ICOS Corp Thr, Nov 04 ----- n/a ----- -0.56
IMGN Immunogen Inc. Thr, Nov 04 After the market -0.07
KCS KCS Energy Thr, Nov 04 ----- n/a ----- 0.37
MGA Magna Intl. Inc. Thr, Nov 04 ----- n/a ----- 1.31
MFC Manulife Financial Thr, Nov 04 After the market 0.72
MOVI Movie Gallery Inc. Thr, Nov 04 Before the bell 0.29
GAS Nicor Inc. Thr, Nov 04 After the market 0.06
NVDA NVIDIA Corp. Thr, Nov 04 ----- n/a ----- 0.09
PGN Progress Energy Thr, Nov 04 Before the bell 1.05
PSA Public Storage Thr, Nov 04 ----- n/a ----- 0.76
Q Qwest Communications Thr, Nov 04 Before the bell -0.15
ROK Rockwell Automation Thr, Nov 04 Before the bell 0.49
SBGI Sinclair Broadcast Thr, Nov 04 Before the bell 0.00
TSO Tesoro Petroleum Thr, Nov 04 ----- n/a ----- 1.22
TEVA Teva Pharmaceutical Thr, Nov 04 Before the bell 0.35
TRW TRW Auto Thr, Nov 04 Before the bell 0.12
UVN Univision Comm. Thr, Nov 04 After the market 0.20
VCLK ValueClick, Inc. Thr, Nov 04 After the market 0.06
HLTH WebMD Thr, Nov 04 After the market 0.10
OATS Wild Oats Markets Thr, Nov 04 ----- n/a ----- -0.11
XMSR XM Satellite Radio Thr, Nov 04 ----- n/a ----- -0.65
------------------------- FRIDAY -------------------------------
BZH Beazer Homes USA Inc Fri, Nov 05 Before the bell 5.49
BRKa Berkshire Hathaway Fri, Nov 05 ----- n/a ----- 748.50
WGR Western Gas Resource Fri, Nov 05 Before the bell 0.38
----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------
Symbol Company Name Ratio Payable Executable
PFSB PennFed Financial 2:1 Oct 29th Nov 01st
ROCK Gibraltar 3:2 Oct 29th Nov 01st
PNY Piedmont Natural Gas 2:1 Oct 29th Nov 01st
ASGR America Service Group 3:2 Oct 29th Nov 01st
VIDE Video Display Corp 2:1 Oct 31st Nov 01st
BGG Briggs & Stratton 2:1 Nov 9th Nov 10th
DVN Devon Energy 2:1 Nov 15th Nov 16th
NFB North Fork Banc 3:2 Nov 15th Nov 16th
FBNC First Bancorp 3:2 Nov 15th Nov 16th
-----------------------------------
Economic Reports & Events This Week
-----------------------------------
Q3 earnings are still announcing at a steady pace but the real
focus this week will be the Tuesday Presidential Election. The
beginning of a new month also brings a parade of economic data.
Watch for the ISM indices, vehicle sales, same-store sale, and
on Friday will be the non-farm payrolls report.
==============================================================
-For-
----------------
Monday, 11/01/04
----------------
ISM manufacturing index for October Last: 58.5 Est: 58.0
Personal Income for September
Pesonal Spending for September
Construction spending for September
-----------------
Tuesday, 11/02/04
-----------------
U.S. Presidential Election
Challenger corporate Layoffs report for October
-------------------
Wednesday, 11/03/04
-------------------
ISM Services index for October Last: 56.7 Est: 58.3
Factory Orders for September
Auto Sales for October
Truck Sales for October
------------------
Thursday, 11/04/04
------------------
Weekly Initial Jobless Claims
Q3 Productivity report (preliminary reading)
Chain store comparable/same-store sales numbers
----------------
Friday, 11/05/04
----------------
Non-farm Payrolls (Jobs) for Oct. Last: +96K Est: +175K
Unemployment rate for October. Last: 5.4%
Hourly Earnings for October
Average work week for October
Consumer Credit for September
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The Option Investor Newsletter Sunday 10-31-2004
Sunday 2 of 5
In Section Two:
Watch List: SLB, PD, LTR, VIP
Dropped Calls: None
Dropped Puts: None
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Watch List
**********
Miners to Oil services and more!
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Phelps Dodge - PD - close: 87.54 change: +2.85
WHAT TO WATCH: Material stocks took a hit mid-week on concerns
that China's economy would slow down too fast and its demand for
commodities would ease. The concern didn't last long. Copper
prices soared on Friday and shares of PD added 3.3 percent. The
daily MACD indicator on PD's chart is nearing a new buy signal.
We would watch for a break into the gap or a breakout over round-
number resistance at the $90.00 mark. The P&F chart remains
bullish with a $138 target.
Chart=
---
Schlumberger Ltd - SLB - close: 62.94 change: +0.89
WHAT TO WATCH: We mentioned SLB before. The oil service stock
has seen some serious profit taking after peaking near $70 about
three weeks ago. Now shares are testing the simple 200-dma and
its long-term trendline of support dating back to April 2003.
The pattern suggests we should go long now but that takes more
faith than we have at the moment. We will be watching for a
bounce and consider a move over $63.50-64.00 as a potential entry
point.
Chart=
---
Loews Corp - LTR - close: 59.90 change: +0.41
WHAT TO WATCH: This diversified conglomerate has its hands in
several industries but it's main business is insurance. The
rebound from the exponential 200-dma looks pretty strong but
shares are still stuck under round-number resistance at $60.00.
There is more resistance near $63.00 but we'd consider going long
on a breakout over $60. A move over $60 would reverse its P&F
chart back into a buy signal.
Chart=
---
Vimpel Communications - VIP - close: 114.00 change: +2.50
WHAT TO WATCH: Once again we strongly considered adding VIP to
the play list this weekend as a bullish candidate. The stock's
recent breakout back over the $110 level and breaking its short-
term trend of lower highs looks tempting. Short-term technicals
are strongly bullish and its MACD is nearing a new buy signal.
Consider using a trigger over $115. The P&F chart only points to
$120 but we would probably target $125.
Chart=
-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------
ASH $57.62 +0.97 - ASH isn't the fastest moving stock but the up
trend looks consistent. It's MACD is in a new buy signal and its
P&F chart points to a $70 target.
TARO $26.57 +1.76 - TARO still looks tempting with the bounce
from $24.00. Volume has been pretty strong the last few days.
WWY $65.40 +0.33 - WWY continues to rally after breaking out over
resistance at the $64.00 mark.
MTB $103.00 +0.50 - Wow! MTB is now up five days in a row.
Looks like we had our stop too tight. We'll watch for a dip.
**************************
PICKS WE DROPPED THIS WEEK
**************************
Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.
CALLS
^^^^^
None
PUTS
^^^^
None
***********
DEFINITIONS
***********
OI = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.
RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.
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The Option Investor Newsletter Sunday 10-31-2004
Sunday 3 of 5
In Section Three:
Current Calls: DHR, FDX, GS, IBM, ITW, LEH, SBUX
New Calls: ITT
Current Puts: APOL
New Puts: None
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CURRENT CALL PLAYS
******************
Danaher - DHR - close: 55.13 change: +0.39 stop: 51.99
Company Description:
Danaher, a leading industrial company, designs, manufactures and
markets innovative products, services and technologies with
strong brand names and significant market positions.
(source: company press release)
Why We Like It:
DHR finished out a relatively strong week. The stock posted
gains four out of the last five days. The current up trend and
pattern of higher lows is still very much intact. Volume on
Friday was above average as the stock broke out over resistance
at the $55 level to close at new all-time highs. The P&F chart
remains bullish. Short-term technicals remain bullish.
Everything appears to be flashing the green light for DHR. We
are still targeting a move to $60.00. If shares do dip we'll
look for a bounce in the $53-54 level. No change in our stop
loss at $51.99.
Suggested Options:
Short-term traders can choose the Novembers, Decembers or January
calls. We're going to suggest the Decembers and January strikes.
BUY CALL DEC 50 DHR-LJ OI= 832 current ask $5.80
BUY CALL DEC 55 DHR-LK OI=1558 current ask $2.00
BUY CALL DEC 60 DHR-LL OI= 0 current ask $0.35
BUY CALL JAN 55 DHR-AK OI=2835 current ask $2.55
BUY CALL JAN 60 DHR-AL OI= 178 current ask $0.65
Annotated chart:
Picked on October 27 at $54.99
Change since picked: + 0.14
Earnings Date 10/21/04 (confirmed)
Average Daily Volume = 1.3 million
Chart =
---
Fedex Corp - FDX - close: 91.12 change: +0.57 stop: 84.99
Company Description:
FedEx Corp. provides customers and businesses worldwide with a
broad portfolio of transportation, e-commerce and business
services. With annual revenues of $26 billion, the company offers
integrated business applications through operating companies
competing collectively and managed collaboratively, under the
respected FedEx brand. Consistently ranked among the world's most
admired and trusted employers, FedEx inspires its more than
240,000 employees and contractors to remain "absolutely,
positively" focused on safety, the highest ethical and
professional standards and the needs of their customers and
communities. (source: company press release)
Why We Like It:
It was a strong week for transportation stocks. The ten percent
pull back in crude oil helped propel the already strong Dow
Transportation index to new five-year highs over resistance in
the 3400-3430 range. FDX was helping lead the pack. Shares of
FDX rose four days in a row, broke out over round-number,
psychological resistance at the $90.00 mark to close at new all-
time highs. The technicals remain very bullish and its MACD is
strengthening its new buy signal. The P&F chart remains in its
bullish catapult breakout with a $97 target. Our target is the
$100 level. Plus, we suspect FDX could announced a 2-for-1 split
at any time and the odds only rise for a split announcement as
the stock nears triple digits. It last split 2:1 in May of 1999.
FYI: You may have noticed that all of the suggested options below
have risen sharply from last week with gains of +50 percent to
more than 100 percent. We still think this is a bullish
opportunity at current levels.
Suggested Options:
Traders can choose from the Novembers, Decembers and January
calls. Currently the Novembers have a lot of open interest and
volume but we'd suggest the Decembers too. Both months will
work.
BUY CALL NOV 85 FDX-KQ OI=1646 current ask $6.50
BUY CALL NOV 90 FDX-KR OI=5073 current ask $2.45
BUY CALL NOV 95 FDX-KS OI=1418 current ask $0.45
BUY CALL DEC 85 FDX-LQ OI= 150 current ask $7.10
BUY CALL DEC 90 FDX-LR OI= 863 current ask $3.40
BUY CALL DEC 95 FDX-LS OI= 306 current ask $1.15
Annotated Chart:
Picked on October 21 at $89.45
Change since picked: + 1.67
Earnings Date 09/22/04 (confirmed)
Average Daily Volume = 1.5 million
Chart =
---
Goldman Sachs - GS - close: 98.38 change: +0.95 stop: 93.00*new*
Company Description:
Goldman Sachs is a leading global investment banking, securities
and investment management firm that provides a wide range of
services worldwide to a substantial and diversified client base
that includes corporations, financial institutions, governments
and high net worth individuals. Founded in 1869, it is one of the
oldest and largest investment banking firms. The firm is
headquartered in New York and maintains offices in London,
Frankfurt, Tokyo, Hong Kong and other major financial centers
around the world. (source: company press release)
Why We Like It:
This past week was also a very strong one for the broker-dealers.
The XBD index confidently broke out over resistance at the 130
level and its simple 200-dma above that. While the XBD paused a
bit on Friday to digest some of its gains shares of GS did not.
The stock (GS) is now up four days in a row after its strong
bounce from the $91 level and its simple 100-dma. We're very
encouraged by the follow through on its breakout over resistance
at $96 and the simple 200-dma. Short-term technicals look very
strong and its MACD is now two days into a new buy signal. The
P&F chart looks strong with an ascending triple-top breakout buy
signal and a $114 price target. We are currently targeting a
move to the $105 level but short-term traders may want to
consider taking some profits at the $100 mark, which is likely to
be short-term, round-number, psychological resistance. Given the
strong rebound GS does look a little bit overbought. If you're
patient one could wait for a potential dip and bounce from the
$96 level, which should now be support. We're going to raise our
stop loss to $93.00.
FYI: Many of the suggested options below have already seen
significant gains since we added GS. We still believe this is
a bullish opportunity.
Suggested Options:
Short-term traders can use the November, December or January
calls. We're going to suggest the Decembers and Januarys.
BUY CALL DEC 90 GS-LR OI=1546 current ask $9.30
BUY CALL DEC 95 GS-LS OI=3115 current ask $5.20
BUY CALL DEC 100 GS-LT OI=6826 current ask $2.15
BUY CALL JAN 95 GS-AS OI=14228 current ask $6.10
BUY CALL JAN 100 GS-AT OI=25517 current ask $3.00
BUY CALL JAN 105 GS-AA OI=14577 current ask $1.20
Annotated chart:
Picked on October 27 at $96.10
Change since picked: + 2.28
Earnings Date 09/21/04 (confirmed)
Average Daily Volume = 3.2 million
Chart =
---
Intl Business Mach. - IBM - close: 89.75 chg: +0.25 stop: 86.00
Company Description:
IBM is the world's largest information technology company, with
80 years of leadership in helping businesses innovate. Drawing on
resources from across IBM and IBM Business partners, IBM offers a
wide range of services, solutions and technologies that enable
customers, large and small, to take full advantage of the new era
of e-business. (source: company press release)
Why We Like It:
Bulls certainly can't complain about IBM's past week. The stock
is up four out of the last five days. If there is anything to
complain about it's the tug-of-war going on at the stock's
current 200-dma. Wednesday IBM broke out above this technical
level. Thursday is dropped back below. Friday it rebounded
above it again. We remain bullish. IBM is merely digesting some
of its gains as it builds up steam to really breakout over the
$90 level. Short-term technicals remain positive. It's P&F
chart shows a bullish catapult breakout with a $97 target. Our
six to eight week target is the $100 level. We might suggest
that more conservative traders wait for IBM to make a more
significant breakout over the $90 mark.
Suggested Options:
Traders can choose from the Novembers, Decembers and January
strikes. We're going to suggest the December and January calls.
BUY CALL DEC 85 IBM-LQ OI= 5078 current ask $5.50
BUY CALL DEC 90 IBM-LR OI= 7021 current ask $2.10
BUY CALL DEC 95 IBM-LS OI= 5150 current ask $0.55
BUY CALL DEC100 IBM-LT OI= 1192 current ask $0.15-not suggested
BUY CALL JAN 85 IBM-AQ OI=13482 current ask $6.20
BUY CALL JAN 90 IBM-AR OI=40608 current ask $2.90
BUY CALL JAN 95 IBM-AS OI=25154 current ask $1.00
BUY CALL JAN100 IBM-AS OI=36253 current ask $0.40-not suggested
Annotated chart:
Picked on October 27 at $90.00
Change since picked: - 0.25
Earnings Date 10/18/04 (confirmed)
Average Daily Volume = 4.7 million
Chart =
---
Illinois Tool Works - ITW - close: 92.28 chg: +1.19 stop: 87.50
Company Description:
ITW is a $10 billion in revenues diversified manufacturer of
highly engineered components and industrial systems and
consumables. The Company consists of approximately 625
decentralized operations in 44 countries and employs some 47,500
people. (source: company press release)
Why We Like It:
Good news for ITW bulls. The stock has not missed a beat.
Shares dipped to the bottom of its trading range last week and
began to rebound. Now ITW is up five days in a row with a near
perfect rebound. Friday's 1.3 percent gain was important because
it cleared minor resistance at $92 and a cloud of minor moving
averages. Short-term technicals remain strong and its MACD
indicator just produced a fresh buy signal. Of course now that
ITW is up five days in a row it's probably time to look for a
little profit taking. Nothing moves in a straight line. If
shares dip we'll look for a bounce from $91 or $90. We continue
to target the top of the trading range near $96.
FYI: ITW's Boad of Directors just announced a quarterly cash
dividend of 28 cents per share payable on Monday, January 24th,
2005 to shareholders on record December 31st, 2004.
Suggested Options:
We are going to suggest the December or January calls.
BUY CALL DEC 85 ITW-LQ OI= 98 current ask $8.30
BUY CALL DEC 90 ITW-LR OI=977 current ask $4.30
BUY CALL DEC 95 ITW-LS OI=694 current ask $1.55
BUY CALL JAN 85 ITW-AQ OI=3316 current ask $8.70
BUY CALL JAN 90 ITW-AR OI= 403 current ask $4.90
BUY CALL JAN 95 ITW-AS OI= 556 current ask $2.25
Annotated chart:
Picked on October 27 at $90.89
Change since picked: + 1.39
Earnings Date 10/19/04 (confirmed)
Average Daily Volume = 1.2 million
Chart =
---
Lehman Brothers - LEH - close: 82.15 chg: -0.20 stop: 77.25
Company Description:
Lehman Brothers, an innovator in global finance, serves the
financial needs of corporations, governments and municipalities,
institutional clients, and high-net-worth individuals worldwide.
Founded in 1850, Lehman Brothers maintains leadership positions
in equity and fixed income sales, trading and research,
investment banking, private equity and wealth and asset
management services. The Firm is headquartered in New York, with
regional headquarters in London and Tokyo and operates in a
network of offices around the world.
(source: company press release)
Why We Like It:
The rebound has now reached new relative highs. We initially
added LEH for its relative strength, the strength in the broker-
dealer sector, and LEH's bounce from a 38.2 percent Fibonnaci
retracement of the August to October rally. The breakout over
round-number resistance at $80.00 has now lead to a breakout over
minor resistance at $82 and new six-month highs. Short-term
technicals look strong and its MACD just produced a new buy
signal. We remain bullish but LEH is arguably short-term
overbought. If shares dip look for a bounce from $80. Our
short-term target remains $85 but we main keep the play open
given its relative strength. In the news Lehman Brothers agreed
to pay a $222.5 million settlement to the University of
California. The move was a remedy for alleged fraudulent
misrepresentations of Enron's stock and bonds that LEH sold to
the University. As is normally the case LEH was not actually
charged with fraud.
Suggested Options:
Short-term traders can choose from Novembers, Decembers and
January strikes. We're going to suggest the Decembers.
BUY CALL DEC 75 LES-LO OI=108 current ask $8.00
BUY CALL DEC 80 LES-LP OI=785 current ask $4.20
BUY CALL DEC 85 LES-LQ OI=982 current ask $1.60
Annotated chart:
Picked on October 26 at $80.60
Change since picked: + 1.55
Earnings Date 09/21/04 (confirmed)
Average Daily Volume = 2.0 million
Chart =
---
Starbucks - SBUX - close: 52.88 chg: +0.03 stop: 47.95
Company Description:
Starbucks Corporation is the leading retailer, roaster and brand
of specialty coffee in the world, with more than 8,500 retail
locations in North America, Latin America, Europe, the Middle
East and the Pacific Rim. The Company is committed to offering
the highest quality coffee and the Starbucks Experience while
conducting its business in ways that produce social,
environmental and economic benefits for communities in which it
does business. In addition to its retail operations, the Company
produces and sells bottled Frappuccino® coffee drinks, Starbucks
DoubleShot® coffee drink, and a line of superpremium ice creams
through its joint venture partnerships. The Company's brand
portfolio provides a wide variety of consumer products. Tazo
Tea's line of innovative superpremium teas and Hear Music's
exceptional compact discs enhance the Starbucks Experience
through best-of-class products. The Seattle's Best Coffee® and
Torrefazione Italia® Coffee brands enable Starbucks to appeal to
a broader consumer base by offering an alternative variety of
coffee flavor profiles. (source: company press release)
Why We Like It:
We certainly have nothing to complain about here with SBUX. Our
momentum play actually seems to be picking up speed. A few days
ago shares tested the simple 10-dma and rebounded. This should
remain SBUX's first line of defense. Below that will be round-
number, psychological support at the $50.00 mark. As we
suggested on Thursday our only real risk here is a broker
downgrade on valuation. The stock is above the median price
target of $50. We continue to target the $54-55 range.
Suggested Options:
We are going to suggest the November calls. Our favorites are
the 45s, 47.50s and 50s.
BUY CALL NOV 45.00 SQX-KI OI= 889 current ask $8.00
BUY CALL NOV 47.50 SQX-KT OI=3386 current ask $5.70
BUY CALL NOV 50.00 SQX-KJ OI=4753 current ask $3.40
Annotated Chart:
Picked on October 17 at $49.47
Change since picked: + 3.41
Earnings Date 11/10/04 (confirmed)
Average Daily Volume = 3.3 million
Chart =
**************
NEW CALL PLAYS
**************
ITT Industries - ITT - close: 81.14 chg: +0.73 stop: 77.50
Company Description:
ITT Industries, Inc. is a $6 billion global multi-industry
company based in White Plains, NY. ITT supplies advanced
technology products and services in key markets including: fluid
and water management including water treatment; defense
communication, opto-electronics, information technology and
services; electronic interconnects and switches; and other
specialty products. (source: company press release)
Why We Like It:
If the markets are going to produce a post-election rally then
this diversified conglomerate should follow. The stock has been
consolidating sideways for the last few months but the trend of
higher lows suggests it's coiling for another bullish breakout.
We also like how the lows are bouncing from (or near) the simple
and exponential 200-dma's. Currently ITT is testing resistance
near the $81.40-81.50 region. We see the same pattern on the P&F
chart, which is bullish with a $92 target. However, if ITT can
trade over the $82.00 mark it would produce a new triple-top
breakout buy signal. We are going jump in a bit early and use a
TRIGGER at $81.51. Only if ITT trades at or above our entry
point will we go long. If triggered we'll use an initial stop
loss near the exponential 200-dma at $77.50. The next level of
resistance beyond $81.50 will be the $86 region.
Suggested Options:
Traders can choose the November, December or January calls but
we're going to suggest the January strikes.
BUY CALL JAN 80 ITT-AP OI= 783 current ask $3.70
BUY CALL JAN 85 ITT-AQ OI=1351 current ask $1.35
Annotated chart:
Picked on November xx at $xx.xx
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**************************************************************
*****************
CURRENT PUT PLAYS
*****************
Apollo Group - APOL - close: 66.00 chg: -1.17 stop: 71.01 *new*
Company Description:
Apollo Group Inc. has been providing higher education programs to
working adults for more than 25 years. Apollo Group Inc. operates
through its subsidiaries The University of Phoenix Inc.,
Institute for Professional Development, The College for Financial
Planning Institutes Corp., and Western International University
Inc. The consolidated enrollment in its educational programs
makes it the largest private institution of higher education in
the United States. It offers educational programs and services at
82 campuses and 137 learning centers in 39 states, Puerto Rico
and Vancouver, British Columbia.
(source: company press release)
Why We Like It:
Our bearish play in APOL is right on track. The stock gapped
down last Tuesday, consolidated sideways for a couple of days and
closed at a new low for the year on Friday. The lack of
participation in this past week's market rally is very
encouraging. Short-term technicals continue to look bearish and
its MACD has rolled over into another sell signal. As a relative
strength loser we do not think it's too late to open new bearish
positions. Our target remains the $60 region. We are going to
lower our stop loss to $71.01. APOL should find overhead
resistance at $68.50 and again at $70.00.
FYI: Traders who entered this play early may want to consider
taking some money off the table since some of the suggested
November puts have doubled in value.
Suggested Options:
We are going to suggest the November and January options with a
preference for Januarys even though Novembers have most of the
open interest.
!Warning - there are ULG- options available but the prices
don't seem to match up. They could be the result of APOL's
most recent stock split. Double-check your symbols with
your broker.
BUY PUT NOV 75 OAQ-WO OI=3538 current ask $9.40
BUY PUT NOV 70 OAQ-WN OI=6950 current ask $5.20
BUY PUT NOV 65 OAQ-WM OI=5454 current ask $2.35
BUY PUT JAN 75 OAQ-MO OI=2124 current ask $10.50
BUY PUT JAN 70 OAQ-MN OI=3553 current ask $ 7.00
BUY PUT JAN 65 OAQ-MM OI=1385 current ask $ 4.40
BUY PUT JAN 60 OAQ-ML OI=1481 current ask $ 2.60
Annotated Chart:
Picked on October 10 at $69.81
Change since picked: - 4.23
Earnings Date 10/05/04 (confirmed)
Average Daily Volume = 3.3 million
Chart =
*************
NEW PUT PLAYS
*************
None
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Note: Options involve risk. Risk disclosure:
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DISCLAIMER
**********
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The Option Investor Newsletter Sunday 10-31-2004
Sunday 4 of 5
In Section Four:
Leaps: Did You Get Some?
Spreads and Straddles: It's That Time Of Year Again
************************Advertisement*************************
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* Trailing stops based on the option price or the stock price
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Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33
Note: Options involve risk. Risk disclosure:
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**************************************************************
*****
LEAPS
*****
Did You Get Some?
Last week I suggested picking up any new positions
you did not already have as the indexes slipped to
their lows before the election. Monday provided a
very good buying opportunity just before the blast
off began.
The trick question for today is will that rally
hold? Historically there is a strong precedent for
a continued move higher in Nov/Dec but once a trend
becomes well established it becomes a target for the
trend breakers. They will have their work cut out
for them this year with all the signs pointing
toward a bullish fourth quarter.
That is the only thing worrying me. There are too
many signs pointing to a strong Nov/Dec and there
is the lingering estimates for only +5-8% earnings
growth in all of 2005. Will funds push the envelope
into the year end and then test the wind for 2005
before bailing out? Let's hope that is the game
plan.
Oil finally broke with a -10% drop but the initial
bounce appears firm. I have been expecting a drop
post election as the terrorist fears fade but the
demand fears are still growing. It should be very
interesting. If we are stopped out on our oil
plays we will look for opportunities to reenter.
OXY was stopped at $55 and I added it back to the
watch list at $50.
Speaking of reentering, MMM has recovered sharply
from the stop that took us out of the play last
week. I am not ready to reenter it despite the
new forecast for 20% growth but we do need to keep
it on the radar screen.
I am not adding any new plays again this week. I
would like to see a confirmation of a post election
rally first. We have plenty of profit opportunities
already in the portfolio so no need to add more
just for the sake of adding.
All but two of our leaps are profitable and Pfizer
should be back into the green soon if the current
trend continues.
*******************
New Plays
*******************
NONE TODAY
*******************
Dropped Plays
*******************
OXY - Stopped out @ $55.00
******************************
New Watch List Plays Triggered
******************************
QQQ $36.50 Nasdaq Tracking Stock
****************************
Current Portfolio:
****************************
Position Summary Table
****************************
Play Updates
****************************
XLE - S&P Energy SPDR $35.12 ** Stop 33.90 **
We narrowly escaped being stopped on the XLE play with
a drop to $34.45 on Thursday. It is too soon to tell
if this oil weakness will last past the election or
rebound as did the last two profit taking corrections.
Maintain the stop and we will look to get back in closer
to the long term uptrend at $32 if stopped.
2006 $32 LEAP Call WHA-AF
2006 $35 LEAP Call WHA-AI
Entry $33.92 on 9/20
http://members.OptionInvestor.com/leaps/Lp_091904_1.asp
XLE Chart
************************
INTC - Intel Corp $22.24 **Stop $20.50**
Intel gained over a buck for the week and tested a new
two month high at $22.50. No complaints here and Intel
should continue to move higher if a real tech rally
emerges after the election. Several news bites about
cancelled or delayed chips have not slowed the advance.
Current position:
2006 $22 LEAP Call WNL-AX
2006 $25 LEAP Call WNL-AE
Entry $20.00 Sept 3rd
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp
Intel Chart
**********************
TYC - Tyco Intl. $31.10 **Stop $29.00**
Tyco gained a $1.30 for the week in advance of their
earnings due out Monday. Estimates are for +43 cents
on revenue of $10.45 billion. Full year estimates are
$1.63 on revenue of $40.68 billion. This is a +26%
increase from last year. Should they beat estimates
and not release any negative trial news we could see
some short covering push it over resistance at $32.
2005 $30 LEAP Call TYC-AF cost $2.15
2006 $30 LEAP Call WPA-AF cost $4.00
July $25 insurance put - expired - cost $.55
Entry 5/18 $28.32
http://members.OptionInvestor.com/leaps/Lp_051604_1.asp
Tyco Chart
**********************
JNPR - Juniper Networks $26.64 **Stop $23.25**
Juniper broke out to a new SIX-MONTH high on Friday as
funds dressed up their year end statements. This is one
stock I had great faith in and it appears to be well
founded. 70% margins in a growth sector can't be all
bad.
2006 $25 LEAP Call WBW-AE cost $3.50
Insurance = Sept-$17.50 Put (expired) cost 50 cents.
Entry $20.19 (8/16)
http://members.OptionInvestor.com/leaps/Lp_081504_1.asp
JNPR Chart
**********************
COP - Conoco Phillips $84.25 **Stop 81.00**
COP fell from highs for the week near $87 but ended
the week only off -75 cents from the prior week. COP
announced earnings on Wednesday that beat the street
by +30 cents at $2.87 and +1.05 over the same qtr in
2003. Quarterly revenue rose nearly $10 billion to
$34.7B. They produced $4.4B in free cash for the qtr.
Suddenly COP has found itself in the bidding for new
oil properties in Venezuela and Iraq as a new partner
with LUKOIL. LUKOIL won the rights to develop the
giant West Quma oil field in Iraq in 1997 and has
now teamed with COP to develop it once the elections
in Iraq install a formal government.
Current position:
Jan-2006 $75 LEAP Call YRO-AO at $6.70 now $13.50
Entry $73.30 August 30th
http://members.OptionInvestor.com/leaps/Lp_082904_1.asp
COP Chart
**********************
NWS - News Corp $32.24 **Stop 29.00**
News Corp spiked to $33.21 after the shareholder vote
to move to the NYSE was approved by 93.1% of shares.
Preferred shares approved it with a 96.2% vote in
favor.
Earnings are Wednesday and various news items not
related to NWS put a drag on the price going into
the close on Friday.
NWS which represents 6% of the Australian stock market
should complete its move to the NYSE sometime in mid
November and you can bet there will be a big splash
at the NYSE when it happens.
We are significantly under water with the NWS leap
which was moved to the leap section from the Editors
Plays several months ago. NWS declined after the
initial recommendation when Australian funds began
dumping the shares when it appeared the move to the
US would be successful. Once the move is completed
the company will be eligible for inclusion into the
US indexes and at a market cap of nearly $50 billion
index funds will have to buy a huge number of shares.
We have plenty of time on these leaps and I still
have confidence in the plan.
Current position:
2006 $40 LEAP Call WLN-AH at $3.83
Initial play description:
http://members.OptionInvestor.com/editorplays/edply_041104_1.asphttp://members.OptionInvestor.com/editorplays/edply_041804_1.asp
NWS Chart
****************************
UPL - Ultra Petroleum $48.70 **Stop $46.00**
UPL gave up ground from the drop in oil prices and
is holding just above $48. I am leaving he stop in
place at $46 and we will look to get back in at a
lower level if stopped. This stock was due for
some profit taking but the blowout earnings should
keep the buyers interested.
Earnings were reported on Wednesday and UPL saw
a huge +170% jump in earnings for the quarter.
Production increased +87% and they raised estimates
for the year.
JAN-2006 $45 LEAP Call WSS-AI
JAN-2006 $50 LEAP Call WSS-AJ
Entry $45.50 9/21
http://members.OptionInvestor.com/leaps/Lp_090504_1.asp
UPL Chart
****************************
EBAY - EBAY $97.54 ** Stop $92.00 **
EBAY is holding near its all time highs set last week
at $102 and should benefit from any future tech rally.
Meg Witman was honored by the WSJ as a leader in her
field this week and gave an interview to Maria B. at
CNBC which will be aired on Saturday.
In the interview she said the China business had taken
flight and they were already the largest Internet
business in China. The big news was her claim that
China would eventually be the largest revenue source
for the company, even larger then the US. She said
business was booming and the holiday season should
be very profitable.
We are nearing stock split territory. Ebay last
announced a 2:1 split in July 2003 at $100.00 and
in April 2000 near $100.
Earnings were Oct-20th
Stop raised to $92.00
2006 $ 90 LEAP Call YRL-AR
2006 $100 LEAP Call YRL-AT
Entry $90.00 on 9/22
http://members.OptionInvestor.com/leaps/Lp_072504_1.asp
EBAY Chart
****************************
MER - Merrill Lynch $53.91 ** Stop $50.50 **
Merrill continuing to move higher despite news on the
Enron barge case trickling out from the court. MER
broke out to a new four month high on Thursday and
gained more than $2 for the week.
2006 $50 LEAP Call WZM-AJ
2006 $55 LEAP Call WZM-AK
Entry $51.00 on 9/20
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp
MER Chart
***********************
RIMM - Research in Motion $88.22 ** Stop $81.00 **
Despite two downgrades to hold on Thursday RIMM continued
to buck the trend and held within 80 cents of its all
time high at $90 set over the last two weeks. This
stock has positive news on a daily basis and they
are delivering all the Blackberry devices they can
make. A continued tech rally could easily see $120
by year end.
RIMM could be building another consolidation pattern
like it did at $77 before breaking out for the big
gain.
RIMM announced earnings on Sept-30th.
2006 $80 LEAP Call WLJ-AP @ $16.50 now $25.00
2006 $90 LEAP Call WLJ-AR @ $13.20 now $19.60
Sell 2006 $120 LEAP Put WLJ-MD @ $46.70 now $37.50
Entry $77.00 (9/28)
http://members.OptionInvestor.com/leaps/Lp_092604_1.asp
RIMM Chart
****************************
OXY - Occidental Petroleum $55.82 ** Stopped $55.00 **
OXY dropped back to touch $54.90 on Thursday and
stopped us out on the play. Very frustrating since
it came close to its all time high of $58.42 on
Monday.
We will look to reenter OXY at $50 on any post
election pullback in oil prices.
Earnings were Oct-21st
2006 $50 LEAP Calls WXY-AJ @ $8.60 exit $8.20
2006 $55 LEAP Calls WXY-AK @ $5.60 exit $6.10
2006 $60 LEAP Calls WXY-AL @ $3.50 exit $3.50
Entry $55.50 (9/28)
http://members.OptionInvestor.com/leaps/Lp_082904_1.asp
OXY Chart
************************
SYMC - Symantec - $56.91 ** Stop $51.00 **
SYMC was knocked for a loss this week when AOL announced
it would be giving away the McAfee virus product to its
subscribers. AOL had previously sold it for $2.95 per
month.
While this was seen as a potential earnings hit foe SYMC
other analysts believe it was self defense by AOL. The
company was not selling as many of the McAfee products
as it wished and too many of their subscriber computers
were getting hit by viruses. Those viruses can then
make their way back into the AOL system and infect other
users.
Another analyst did not feel SYMC would be hurt by the
practice because AOL was not their major market. A typical
AOL subscriber is far less computer literate than a non
AOL Internet user. They are less likely to purchase
Symantec virus products on their own.
The stop was lowered to $51.00 to give SYMC time to shake
the news and a post election rally to develop. SYMC was
at a new all time high of $62 on Wednesday so profit
taking was natural with any negative news.
Earnings were Oct-20th
2:1 Split announced Oct-20th
2006 $50 LEAP Call YAG-AJ @ $10.70
2006 $55 LEAP Call YAG-AK @ $8.00
2006 $60 LEAP Call YAG-AL @ $5.70
Entry $53.00 on 9/27
http://members.OptionInvestor.com/leaps/Lp_080804_1.asp
SYMC Chart
****************************
XMSR - XM Satellite Radio $32.47 ** Stop $28.00 **
XMSR is consolidating the gains from the prior week and
trying to shake off an earnings miss from Sirius. XMSR
has earnings next Thursday and is expected to do well.
They are much stronger financially than SIRI and should
not miss.
Earnings are Nov-4th.
Current position:
2006 JAN-$30 LEAP Call YLX-AF @ $6.60
2006 JAN-$32 LEAP Call YLX-AZ @ $5.60
2006 JAN-$35 LEAP Call YLX-AG @ $4.60
Entry $29.15 on 10/4
http://members.OptionInvestor.com/leaps/Lp_100304_1.asp
XMSR Chart
******************************
PFE - Pfizer $28.92 ** Stop $26.00 **
Finally a bounce on Pfizer after two weeks of being
slammed with the VIOXX bat from Merck. The stock is
far from out of the woods but a Bush victory should
give it new life. A Kerry victory could add additional
pressure.
PFE announced on Thursday they would buy back $5B in
stock and that helped overcome negative news that
another Merck COX-2 drug had been denied approval
until more safety tests could be run.
2006 JAN $30 CALL LEAP WPE-AF
2006 JAN $32 CALL LEAP WPE-AB
Entry $30.96 10/4
http://members.OptionInvestor.com/leaps/Lp_100304_1.asp
PFE Chart
****************************
DIA $100.37 Dow Diamonds Trust **Stop 97.00**
A +300 point Dow bounce worked out great to take us
away from the stop and the lows for the year. I raised
the stop to 97.00 because a return to those levels
now would suggest serious market damage and a failure
of the post election rally to appear.
A continued rebound will have to break $102-$103 to
gain any real momentum so that is the next level to
watch.
Stop was raised to 97.00
2006 $100 LEAP Call YGF-AV @ $6.30
2006 $104 LEAP Call YGF-AZ @ $4.20
2006 $108 LEAP Call YGF-AD @ $2.90
2006 $112 LEAP Call YGF-AH @ $2.00
Entry 10/14 @ $99.00
DIA Chart
****************************
SMH $32.35 Semiconductor Holders ** Stop $29.00 **
So far, so good! The Semiconductor Holders appear
to be moving nicely with a close at a three month
high but they need to clear $33 to really gain
momentum.
Chip stocks were bought last week despite the
multiple warnings and this week will be the key
to the fourth quarter rally.
2006 $30 LEAP Call YRH-AF @ 5.20
2006 $35 LEAP Call YRH-AG @ 3.12
Sell 2006 $55 LEAP Put YRH-MK @ 24.30
Entry $30.50 (10/19)
SMH Chart
****************************
QQQ $35.63 Nasdaq 100 **Stop $35.00**
The Nasdaq 100 tracking stock came within 16 cents of
our breakdown entry at $35.25 before blasting off to
breakout the topside and trigger the breakout entry
at $36.50. This is not what we wanted but if we get
a real rally in the 4Q it should work out all right.
Twice over the last month we came within a quarter
of the lower entry we wanted and both time we missed.
I am going to keep a tight stop on the QQQ until we
are sure the rebound is going to stick. We ended up
in the options about 50-60 cents higher than if we
had gotten the lower entries so at least it is not
a major difference.
Entry $36.50 (10/27)
2006 $35 LEAP Call YWZ-AI @ $5.10
2006 $37 LEAP Call YWZ-AD @ $3.90
QQQ Chart
****************************
LEAPS Watch List
****************************
Back to the Drawing Board
All of our watch list entries have been triggered with
the final addition of the QQQ Leap last week.
We were stopped on OXY this week by 10 cents and I
put it back on the watch list at $50.00 just in
case we get further weakness in the oil stocks.
If we have a positive market after the election I
will start adding more stocks to the list. Until
we see which direction the market is going I do not
want to add anything to the portfolio. If the 4Q
rally fails to appear I do not want a lot of entries
getting filled only to stop out on a market implosion.
***********************
Dropped Entries
***********************
None
***********************
New Watch List Entries
***********************
OXY to reenter at $50.00
************************Advertisement*************************
We got trailing stops!
* Trade online with trailing stops at optionsXpress, at no extra cost
* Trailing stops based on the option price or the stock price
* Also place Contingent, Stop Loss, and "One Cancels Other" orders
* Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees!
Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
**************************************************************
*******************
SPREADS & STRADDLES
*******************
It's That Time Of Year Again
By Mike Parnos
How does it feel to always have Uncle Sam's hand in your pocket?
And he didn't even take you out to dinner first. Seriously
though, I understand that we have to fund our government. The
least we can do is to provide the government cheese for
directional traders.
We, at the Couch Potato Trading Institute, have pocketed a nice
chunk of dough this year. And we see no reason why we won't do
it again this year. The question is: How do we keep the most of
the profits we generated?
I'm not suggesting we do anything illegal, but there are ways to
navigate through and around tax laws. Below are answers to a few
basic tax questions that you should explore when preparing your
tax return -- and to get ready for next year's profits.
_________________________________________________________________
QUESTION: What is the best structure for tax savings?
ANSWER: You have three options. One is to keep filing your Form
1040 (U.S. Individual Tax Return) year after year. That is the
most expensive solution and unfortunately, that is what most
people do.
Next, you could try to file as a "trader" and deduct your
business expenses on Schedule C of your Form 1040. This is risky
and does not offer you any income tax strategies, so we advise
you to stay away from this option. The third strategy is to place
your trading capital in a legal entity. There are various
entities that may be appropriate, depending on your situation.
Your main choices are the c-corporation, the flow-thru entities
such as the limited liability company (LLC) and the limited
partnership, and a combination of a c-corporation and a flow-thru
entity.
The following is an explanation of the corporation - LLC strategy
for active traders. This strategy can allow you to legally write-
off your computers, home office equipment, all educational
expenses, and a large percentage of meals, entertainment and
travel. You will learn how to run your investment activities as a
qualified business, and how you can grant yourself all the legal
perks, benefits, tax breaks, and tax deductions afforded to large
companies.
The Limitations of Filing a 1040 Tax Return as an Investor
As you probably know, when you file your Form 1040 tax return,
your ability to deduct expenses related to your investment
activities is extremely limited. Certain expenses are deductible,
but these itemized deductions are subject to the 2% of adjusted
gross income limitation. Additionally, deductions for investment
seminars and home offices are categorically disallowed.
Another limitation affecting more and more investors is the Wash
Sale rule. This rule prevents you from realizing losses on
securities sales if you are in basically the same financial
position in a 61-day window of time. The goal of the IRS is to
prevent you from selling a position simply to record the loss,
and then immediately buying back the stock at a lower basis
price. Unfortunately, with active trading being more the norm,
individuals often find themselves moving in and out of the same
stock within the same 61-day window.
One benefit of filing a Form 1040 tax return is the capital gain
treatment of your long-term stock positions. If you hold your
securities for 12 months or longer you can lower your capital
gains tax bracket to as low as 10% or 20%. In conclusion, if you
work at a full-time job and are realizing capital gains in the
stock market, you do not have any powerful methods for offsetting
your tax liabilities. In fact, all of the expenses incurred in
learning how to grow and manage your capital are almost entirely
non-deductible. But what if there was a way to make your
investment activities into a business? What if you became a
qualified money manager in your part-time? Do you think that you
might receive a preferential tax treatment by the IRS? Let's see:
Filing as "Trader" on Form 1040 Tax Return ... tax breaks but risky
This tax strategy boils down to this: You convert your investment
activities into a trading business. Once your investing is
recognized as a business, you are able to deduct any ordinary and
necessary business expenses. What does it take to form a trading
business? The Internal Revenue Code is conspicuously quiet about
how to qualify as a trading business. So, the burden has been
placed on brave individuals who filed their 1040 tax returns and
attempted to establish themselves as "traders" in order to write-
off their business expenses.
Most of these individuals were slaughtered in the tax courts. In
case after case, the individuals were rebuked by the courts. The
net effect of the rulings is that it is nearly impossible to
qualify as a trader. To qualify, you would most likely have to be
trading full-time, hold your positions for less than a day, and
trade a large amount almost every business day throughout the
year. In essence, the court has said, "If you are not on the
floor of the exchange, or holed up in a trading room, you do not
qualify."
Some CPAs have been very active in promoting "trader status"
filings. If you look at the actual text from the court cases,
you will agree that attempting to establish your trading business as
an individual trader on your personal Form 1040 tax return is a
risky proposition and can lead to sleepless nights worrying about
a possible audit. The bottom line is that while a very small
portion of active traders can realize substantial tax savings by
filing as a "trader", a majority of investors do not qualify and
need an alternative strategy.
The Complete Solution: Placing Trading Capital in an Entity Structure
Instead of attempting the Herculean task of qualifying as a
"trader" on your personal return, there is a method of qualifying
that is automatic, trouble-free, and positively overflowing with
powerful tax benefits. This strategy is what business greats like
Warren Buffet, Michael Dell, and Michael Bloomberg, along with
tens on thousands of others, have chosen for their investment
capital.
Advantages of Using a Corporation
One of the most exciting things about using a corporation is the
sheer amount of tax deductions and perks that are available to
corporate owners and company employees. Congress has created tax
laws and special exemptions for corporations. It is the lobbyists
of the major corporations that have paved the way for you. Now,
you can own your own corporation and be able to write-off all
"ordinary and necessary" business expenses, fully deduct the
costs of attending board meetings that are held in vacation
areas, write-off all medical expenses with no limitations,
contribute up to $40,000 to your own pension plan, and much much
more.
For individuals that are generating a large amount of excess
revenue, the corporation structure allows you to start-up
additional businesses with the expenses of the new business
offsetting the income from the trading business. Another great
benefit of the corporate entity is that it is a perpetual entity.
Many individuals choose to retain the controlling interest in the
corporation, and gift the non-controlling stock to their
beneficiaries early in the growth of the business. That way, all
future growth occurs in the estate of the beneficiaries, so that
when you pass away, your beneficiaries do not need to sell off
your business simply to pay the taxes. All they would be
receiving is the small amount of controlling stock.
Taking Action
If you are a part-time trader, you have created a situation where
you can take advantage of major tax strategies usually reserved
for individuals with full-time businesses. It is simply a matter
of getting started. We are the experts in this arena. We can look
at your situation and show you how the entity structure would
work in your situation.
The Trader Tax Experts
Once again, the answers have been provided by the tax experts at
TradersAccounting.com. All questions and/or clarifications should
be directed to their website.
_____________________________________________________________________________
NOVEMBER CPTI POSITIONS
November Position #1 - SPX Iron Condor - 1130.20
We sold 12 SPX November 1185 calls and bought 12 SPX November
1200 calls with a credit of about $1.25 ($1,500). Then we sold 9
SPX November 1070 puts and bought 9 SPX November 1050 puts for a
credit of about $1.65 ($1,485). Total credit and potential
profit of about $2,985. The maximum profit range is from 1070 to
1185. Can this 115-point range withstand the market's emotional
highs and lows? Let's hope so. The maintenance is $18,000. The
potential return on risk is about 20%.
New November Position #2 - SPX Iron Condor - 1130.20
Considering the downward market movement, I felt it is
appropriate to initiate a SPX position with different parameters.
We sold 10 SPX Nov. 1160 calls and bought 10 SPX Nov. 1180 calls
for a credit of about $1.40 ($1,400). Then we sold 13 SPX Nov.
1025 puts and bought 13 SPX Nov. 1005 puts for a credit of about
$1.20 ($1,560). Maximum profit potential of about $2,960. Max
profit range of 1025 - 1160. Maintenance: $20,000.
November Position #3 - OEX Iron Condor - 540.65
We sold 10 OEX Nov. 500 puts and bought 10 OEX Nov. 490 puts for
a credit of about $.70 ($700). Then we sold 10 OEX Nov. 555
calls and bought 10 OEX Nov. 565 calls for a credit of about $.60
($600). Total net credit and maximum profit of $1.30 ($1,300).
Max profit trading range of 500 to 555. Maintenance $10,000.
November Position #4 - RUT - Iron Condor - 583.79
We sold 10 RUT Nov. 520 puts and bought 10 RUT Nov. 510 puts for
a credit of about $.70 ($700). Then we sold 10 RUT Nov. 610
calls and bought 10 RUT Nov. 620 calls for a credit of about $.60
($600). Total net credit and maximum profit of $1.30 ($1,300).
Max profit range of 520 to 610. Maintenance $10,000.
____________________________________________________________
ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $36.90
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300. We make
money by selling near term puts and calls every month. Here’s
what we’ve done so far: Oct. $33 puts and Oct. $34 calls –
credit of $1,900. Nov. $34 puts and calls – credit of $1,150.
Dec. $34 puts and calls – credit of $1,500. Jan. $34 puts and
calls – credit of $850. Feb. $34 calls and $36 puts – credit of
$750. Mar. $34 calls and $37 puts – credit of $1,150. Apr. $34
calls and $37 puts – credit of $750. May $34 calls and $37 puts
– credit of $800. June $34 calls and $37 puts -- total net credit
of $750. We rolled out to the July $34 calls ($.20 credit) and
$37 puts ($.60 credit) and took in a credit of $.80 ($800). We
rolled to the August $34 calls and $37 puts, taking in a credit
of $900. We rolled to the Sept. $34 calls and $37 puts, yielding
$.45 or $450 for the cycle. For October we were again limited to
a $.45 ($450) rollout. We rolled to the November. $34 calls and
$37 puts for a total of $.70 ($700). Our new total credit is now
$12,900.
Note: We haven't included the proceeds from this long term QQQ
ITM Strangle in our profit calculations. It's a bonus! And it's
a great conservative cash flow generating strategy.
ZERO-PLUS Strategy. OEX – 540.65
In my Feb. 8th column, I outlined a strategy based on an initial
investment of $100,000. $74,000 was spent on zero coupon bonds
maturing in seven years at a value of $100,000. The principal
$100,000 investment is guaranteed. We’re trading the remaining
$26,000 to generate a "risk free" return on the original
investment. We own 3 OEX December 2006 540 calls @ $81 (x 300 =
$24,300). Our cash position as of August expiration was $8,390.
In September we added another $975 for a total of $9,365. In
October we added $650 for a new total of $10,015.
Zero-Plus Position For November
November bull put spread 500/490 for credit of $.70 x 5 = $350.
November bear call spread 555/565 for credit of $.60 x 5 = $300.
If all goes well, we'll be able to add another $650 to our cash
position.
__________________________________________________________
SPX "Sure Thing" Strategy - 1130.20
Formerly called the "Credit Spread Boogie." The market seems to
be in an uptrend since mid-August. Let's go with the flow until
the market tells us otherwise. We sold 3 SPX 1120 October puts
and bought 3 SPX 1095 October puts for a net credit of about
$6.50 ($1,950). The initial maintenance was $7,500.
When the SPX traded in the low 1100s, it was time for an
adjustment. We closed out the original bull put spread for
$13.20 ($3,960). We then opened a seven-contract position of an
1115/1140 bear call spread, taking in $6.35 ($4,445). That means
we've taken in some extra premium. Our new profit potential is
$2,435 -- if SPX closes below 1115.
We've been getting whipsawed. Our most recent position was a
November 14-contract 1120/1095 bull put spread (coincidentally,
right back where we started) at $7.00 ($9,800). The maintenance
is getting pricey at $35,000. That's why this strategy is not
for everyone. Our potential profit is still $2,435.
Here we go again. We had to close the 1120/1095 bull put spread
and we initiated a new 1115/1140 bear call spread. We picked up
another $350 in premium to $2,785, but our maintenance is now
$70,000.
____________________________________________________________
Happy Trading!
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In
trading, as in life, it's not the cards we're dealt. It's how we
play them.
Mike Parnos, Options Therapist and CPTI Master Strategist
____________________________________________________________
Couch Potato Trading Institute Disclaimer
All results reported in this section are hypothetical. While the
numbers represented here may have been achieved or beaten by our
readers, we make no representation that any individual investor
achieved these exact results. The tracking for the plays listed
in this section uses closing prices for the day the newsletter is
published and it is not meant to imply that any reader actually
received those prices or participated in these recommendations.
The portfolio represented here is hypothetical and for investment
education purposes only. It is only an illustration of what type
of gains a knowledgeable investor might receive utilizing these
strategies.
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
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The Option Investor Newsletter Sunday 10-31-2004
Sunday 5 of 5
In Section Five:
Covered Calls: CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles: Rally Stalls As GDP Fails To Inspire Investors
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COVERED CALLS
**************
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Many investors find that writing "in-the-money" covered-calls
fits their criteria for a conservative, easy-to-manage options
strategy.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW COVERED-CALL CANDIDATES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The following group of issues is a list of potential candidates
to supplement your search for profitable trading positions. As
with any investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook. They will not be included in
the weekly portfolio summary.
_________________________________________________________________
Sequenced by Target Yield (monthly basis/no margin)
Stock Last Option Option Last Open Cost Days Target
Symbol Price Series Symbol Bid Int. Basis Exp. Yield
DNDN 10.34 NOV 10.00 UKO-KB 1.00 4338 9.34 20 10.7%
GERN 7.86 NOV 7.50 GQD-KU 0.85 3158 7.01 20 10.6%
NTMD 24.30 NOV 22.50 QNR-KX 3.00 1112 21.30 20 8.6%
BVF 18.72 NOV 17.50 BVF-KW 1.90 2194 16.82 20 6.1%
SYNA 31.64 NOV 30.00 QYG-KF 2.70 124 28.94 20 5.6%
SIGM 7.91 NOV 7.50 MQN-KU 0.65 69 7.26 20 5.0%
DHB 13.82 NOV 12.50 DHB-KV 1.70 1258 12.12 20 4.8%
TSRA 27.93 NOV 25.00 TJQ-KE 3.70 2084 24.23 20 4.8%
STSI 5.50 NOV 5.00 QSE-KA 0.65 242 4.85 20 4.7%
LNG 24.84 NOV 22.50 LNG-KX 2.90 510 21.94 20 3.9%
Company Descriptions
LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).
_________________________________________________________________
DNDN - Dendreon $10.34
Dendreon (NASDAQ:DNDN) is a biotechnology company focused on the
discovery, development and commercialization of therapies for
cancer. The company's portfolio includes product candidates to
treat a range of cancers using therapeutic vaccines, monoclonal
antibodies, small molecules and pro-drugs. Its most advanced
product candidate is Provenge, a therapeutic vaccine for the
treatment of prostate cancer. Dendreon's preclinical programs
include monoclonal antibodies, therapies targeting the trp-p8
pathway and serine protease and pro-drug product candidates for
the treatment of cancer.
DNDN - Dendreon $10.34
NOV 10.00 UKO-KB LB=1.00 OI=4338 CB=9.34 DE=20 TY=10.7%
_________________________________________________________________
GERN - Geron $7.86
Geron (NASDAQ:GERN) is a biopharmaceutical company focused on
developing and commercializing therapeutic and diagnostic
products for cancer. The company's products are based on its
telomerase technology and cell-based therapeutics using its
human embryonic stem cell technology. Geron is working to
develop anti-cancer therapies based on telomerase inhibitors,
telomerase therapeutic vaccines and, through its collaborators,
telomerase-based oncolytic (cancer-killing) viruses. It also
intends to continue the development and commercialization of
its products using telomerase as a marker for cancer diagnosis,
prognosis, patient monitoring and screening.
GERN - Geron $7.86
NOV 7.50 GQD-KU LB=0.85 OI=3158 CB=7.01 DE=20 TY=10.6%
_________________________________________________________________
NTMD - NitroMed $24.30
NitroMed (NASDAQ:NTMD) is an emerging pharmaceutical company
with substantial expertise and intellectual property in nitric
oxide-based drug development. The firm is applying its nitric
oxide technology to develop new pharmaceuticals, as well as
safer and more effective versions of existing pharmaceuticals
to target diseases and commercial markets. Its lead nitric
oxide-enhancing medicine, BiDil, which is being developed to
reduce mortality and hospitalization and to improve quality of
life for African Americans diagnosed with heart failure is the
subject of a Phase III confirmatory clinical trial.
NTMD - NitroMed $24.30
NOV 22.50 QNR-KX LB=3.00 OI=1112 CB=21.30 DE=20 TY=8.6%
_________________________________________________________________
BVF - Biovail $18.72
Biovail (NYSE:BVF) is a pharmaceutical company engaged in the
development, manufacture and marketing of medications utilizing
advanced drug delivery technologies for the treatment of chronic
medical conditions. The firm's primary focus is on three major
therapeutic areas: cardiovascular (including Type II diabetes),
central nervous system and pain management. Other major areas of
interest include antiviral medicine and select niche therapeutic
categories with identified potential.
BVF - Biovail $18.72
NOV 17.50 BVF-KW LB=1.90 OI=2194 CB=16.82 DE=20 TY=6.1%
_________________________________________________________________
SYNA - Synaptics $31.64
Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of
custom-designed user interface solutions for notebook computers.
The company's original equipment manufacturer customers include
ten large personal computer OEMs. Synaptics generally supplies
its OEM customers through its contract manufacturers, which take
delivery of its products and pay the company directly for the
OEMs. Synaptics family of product solutions include TouchPad,
TouchPad Under Plastic, TouchStyk, dual pointing solutions,
ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese
character recognition, Fingerprint TouchPad, TouchRing and
TouchScreen.
SYNA - Synaptics $31.64
NOV 30.00 QYG-KF LB=2.70 OI=124 CB=28.94 DE=20 TY=5.6%
_________________________________________________________________
SIGM - Sigma Designs $7.91
Sigma Designs (NASDAQ:SIGM) specializes in silicon-based digital
media processing solutions for consumer products. Its solutions,
based on its REALmagic Video Technology, provide decoding of
MPEG-4, MPEG-2, MPEG-1 and Windows Media Video 9 content. The
company has developed system solutions for convergence products,
including DVD playback, digital television reception, video over
Internet protocol, personal video recording and video-on-demand.
Its business operates in one major segment, consumer electronic
devices and products.
SIGM - Sigma Designs $7.91
NOV 7.50 MQN-KU LB=0.65 OI=69 CB=7.26 DE=20 TY=5.0%
_________________________________________________________________
DHB - DHB Industries $13.82
DHB Industries (NYSE:DHB) is a holding company consisting of two
major divisions: DHB Armor Group and DHB Sports Group. The Armor
Group includes both Point Blank Body Armor and Protective Apparel
Corporation of America. The Armor Group principally manufactures
three basic types of body armor: concealable armor, which is worn
beneath the user's clothing and designed to protect against less
serious weapons; tactical armor, which is worn externally and is
designed to protect against more serious threats, and modular
concealable/tactical armor, which allows the wearer to customize
the armor for either concealed or tactical use.
DHB - DHB Industries $13.82
NOV 12.50 DHB-KV LB=1.70 OI=1258 CB=12.12 DE=20 TY=4.8%
_________________________________________________________________
TSRA - Tessera Technologies $27.93
Tessera Technologies develops semiconductor-packaging technology
that meets the ongoing demand for miniaturization and increased
performance of electronic products. It licenses its technology
to customers, enabling them to produce semiconductors that are
smaller and faster and incorporate more features. These chips
are utilized in electronics products, including digital cameras,
MP3 players, personal computers, personal digital assistants,
video game consoles and wireless phones. The firm's technology
enables multiple semiconductors to be stacked vertically in a
single three-dimensional, multi-chip package that occupies almost
the same circuit board area as a chip-scale package.
TSRA - Tessera Technologies $27.93
NOV 25.00 TJQ-KE LB=3.70 OI=2084 CB=24.23 DE=20 TY=4.8%
_________________________________________________________________
STSI - Star Scientific $5.50
Star Scientific (NASDAQ:STAR) and its wholly owned subsidiary,
Star Tobacco, is engaged in the development, implementation and
licensing of scientific technology for the curing of tobacco,
so as to prevent the formation of carcinogenic toxins present
in tobacco and tobacco smoke, the tobacco-specific nitrosamines.
It is also engaged in the manufacturing, sales, marketing and
development of low-nitrosamine smokeless tobacco products that
carry enhanced warnings beyond those required by the Surgeon
General, including Stonewall moist and dry snuffs, ARIVA
compressed powdered tobacco cigalett pieces and STONEWALL Hard
Snuff.
STSI - Star Scientific $5.50
NOV 5.00 QSE-KA LB=0.65 OI=242 CB=4.85 DE=20 TY=4.7%
_________________________________________________________________
LNG - Cheniere Energy $24.84
Cheniere Energy (NYSE:LNG) is engaged in the development of
liquefied natural gas receiving and related opportunities,
centered on the United States Gulf Coast. The LNG-receiving
terminal business consists of receiving deliveries of LNG
from LNG ships, processing such LNG to return it to a gaseous
state and delivering it to pipelines for transportation to
purchasers. The company is also engaged in exploration for
oil and gas, as well as development and exploitation of major
reserves, in the Gulf of Mexico.
LNG - Cheniere Energy $24.84
NOV 22.50 LNG-KX LB=2.90 OI=510 CB=21.94 DE=20 TY=3.9%
*******************
SPREADS & STRADDLES
*******************
Rally Stalls As GDP Fails To Inspire Investors
By Ray Cummins
Stocks traded in small range Friday after data from the gross
domestic product report suggested that record energy costs are
restraining economic growth.
A Commerce Department report said that third-quarter GDP rose
by 3.7%, less than the 4.3% rise expected among analysts, and
investors are concerned that crude prices will restrain growth
further in the coming months. The Dow Jones industrials added
22 points to finish at 10,027, with ChevronTexaco (NYSE:CVX)
among the bullish components after posting a 60% increase in
quarterly profits. The NASDAQ composite index ended unchanged
at 1,974, despite selling pressure in internet retail shares.
The S&P 500-stock index closed up 2 points at 1,130, as steel,
gold, oil & gas equipment, railroad and hospital issues enjoyed
buying interest. Advancing issues outnumbered decliners 5 to 4
on the New York Stock Exchange on volume of 1.5 billion shares.
Breadth on the technology exchange was roughly neutral with 1.6
billion shares changing hands. Treasury prices drifted higher
with the benchmark 10-year note up 6/32 at 4.02%.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/29/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The following summary is a reasonable account of the positions
previously offered in this section. However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted. In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed. In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.
PUT-CREDIT SPREADS
Stock Pick Last Mon L/P S/P Credit CB G/L Status
BSC 94.16 94.75 NOV 80.0 85.0 0.65 84.35 0.65 Open
BTU 60.07 63.78 NOV 50.0 55.0 0.60 54.40 0.60 Open
MRVL 28.84 28.57 NOV 22.5 25.0 0.35 24.65 0.35 Open
COST 44.69 47.94 NOV 40.0 42.5 0.30 42.20 0.30 Open
NEM 46.25 47.52 NOV 40.0 42.5 0.30 42.20 0.30 Open
INSP 47.25 52.50 NOV 35.0 40.0 0.85 39.15 0.85 Open
BG 41.96 47.73 NOV 35.0 40.0 0.50 39.50 0.50 Open
ADBE 53.57 56.03 NOV 45.0 50.0 0.50 49.50 0.50 Open
VRNT 37.73 38.88 NOV 30.0 35.0 0.55 34.45 0.55 Open
GTRC 47.81 44.63 NOV 40.0 45.0 0.45 44.55 0.08 Open?
OSTK 52.63 54.14 NOV 40.0 45.0 0.60 44.40 0.60 Open
MDC 76.00 76.75 NOV 65.0 70.0 0.50 69.50 0.50 Open
SPF 53.90 56.15 NOV 45.0 50.0 0.60 49.40 0.60 Open
L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss
Although both are currently profitable, positions in Pacificare
Health Systems (NYSE:PHS) and Celgene (NASDAQ:CELG) have previously
been closed to limit potential losses. Guitar Center (NASDAQ:GTRC)
is a candidate for "early-exit" on any further downside movement.
CALL-CREDIT SPREADS
Stock Pick Last Mon L/C S/C Credit CB G/L Status
AMZN 40.47 34.13 NOV 50.0 45.0 0.65 45.65 0.65 Open
PDX 55.00 56.25 NOV 65.0 60.0 0.60 60.60 0.60 Open
BZH 103.14 109.78 NOV 115.0 110.0 1.10 111.10 1.10 Open?
CHIR 37.98 32.42 NOV 45.0 42.5 0.30 42.80 0.30 Open
FLIR 54.52 53.21 NOV 65.0 60.0 0.70 60.70 0.70 Open
MERQ 37.97 43.43 NOV 45.0 42.5 0.35 42.85 (0.58) Closed
BIIB 59.82 58.16 NOV 70.0 65.0 0.65 65.65 0.65 Open
MCHP 27.56 30.25 NOV 35.0 30.0 0.60 30.60 0.35 Closed
CB 66.75 72.13 NOV 75.0 70.0 0.60 70.60 (1.53) Closed
HIG 56.30 58.48 NOV 65.0 60.0 0.80 60.80 0.80 Open?
AET 87.26 95.00 NOV 100.0 95.0 0.40 95.40 0.40 Closed
CI 60.65 63.46 NOV 70.0 65.0 0.75 65.75 0.75 Open?
IFIN 36.50 38.49 NOV 42.5 40.0 0.30 40.30 0.30 Open
TTWO 32.55 32.96 NOV 37.5 35.0 0.30 35.30 0.30 Open
SPW 37.40 38.35 NOV 42.5 40.0 0.30 40.30 0.30 Open
QCOM 39.50 41.60 NOV 45.0 42.5 0.30 42.80 0.30 Open
L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss
Positions in the Insurance sector became candidates for early exit
after an unexpected announcement from the New York Attorney General
sparked a rally in the group. The issues include Aetna (NYSE:AET)
Hartford Insurance (NYSE:HIG), Cigna (NYSE:CI) and Chubb (NYSE:CB).
Beazer Homes (NYSE:BZH) is also an exit candidate with the bullish
activity in home construction shares. Qualcomm (NASDAQ:QCOM) and
SPX Corp. (NYSE:SPW) are on the "watch" list. Mercury Interactive
(NASDAQ:MERQ) and Microchip (NASDAQ:MCHP) have been closed to limit
potential losses.
DEBIT STRADDLES
Stock Pick Last Exp. Long Long Initial Max Play
Symbol Price Price Month Call Put Debit Value Status
JCOM 29.93 29.78 NOV 30.0 30.0 3.75 3.50 Closed
NTES 40.00 46.51 NOV 40.0 40.0 5.00 7.90 Open?
The speculative position in Netease.com (NASDAQ:NTES) reached our
profit target in less than one week. The straddle on j2 Global
Communications (NASDAQ:JCOM) has previously been closed in the
interest of capital preservation, as the earnings report did not
produce the expected volatility in the issue.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions. As with
any new investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook. In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
BULLISH PLAYS - CREDIT SPREADS
These candidates are based on the underlying issue's technical
history or trend. The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEM - Newmont Mining $47.52 *** For Gold "Bulls" Only! ***
Newmont Mining (NYSE:NEM), along with its subsidiaries, is a
worldwide company engaged in the production of gold, exploration
for gold and acquisition of gold properties. The company also
has an interest in a copper/gold mine that commenced production
in late 1999. In addition, the company produces zinc, lead and
copper concentrates at its property in Western Australia. The
company approved in late 2002 a restructuring to facilitate the
acquisitions of Normandy Mining Limited and Franco-Nevada Mining
Corporation Limited and to create a flexible corporate structure.
NEM - Newmont Mining $47.52
PLAY (less conservative - bullish/credit spread):
BUY PUT NOV-42.50 NEM-WV OI=5757 ASK=$0.20
SELL PUT NOV-45.00 NEM-WI OI=11673 BID=$0.50
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$44.65
__________________________________________________________________
PD - Phelps Dodge $87.54 *** Consolidation Complete? ***
Phelps Dodge (NYSE:PD) is engaged in the production of copper,
carbon black, magnet wire, continuous-cast copper rod and also
molybdenum products. The firm consists of two major divisions:
Phelps Dodge Mining, which is an international business for its
vertically integrated copper operations, and Phelps Dodge
Industries, which is the manufacturing division, comprising two
individual business segments that produce engineered products
for the global energy, telecommunications, transportation and
specialty chemicals sectors.
PD - Phelps Dodge $87.54
PLAY (conservative - bullish/credit spread):
BUY PUT NOV-75.00 PD-WO OI=2936 ASK=$0.35
SELL PUT NOV-80.00 PD-WP OI=4887 BID=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$79.50
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
BEARISH PLAYS - CREDIT SPREADS
All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing. However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
ESRX - Express Scripts $64.01 *** In a Trading Range? ***
Express Scripts (NASDAQ:ESRX) is an independent pharmacy benefit
manager (PBM), provides integrated PBM services including network
pharmacy claims processing, mail pharmacy services, benefit design
consultation, drug utilization review and formulary management.
The company offers PBM services to clients in the United States
and Canada. Some of the Company's largest clients included United
HealthCare Insurance Company, which manages the AARP Pharmacy
Service, Blue Cross Blue Shield of Massachusetts, Blue Shield of
California, Mutual of Omaha, the State of Georgia, Mid Atlantic
Medical Services, Group Health Incorporated, and the Department of
Defense TRICARE Management Activity.
ESRX - Express Scripts $64.01
PLAY (conservative - bearish/credit spread):
BUY CALL DEC-75.00 XTQ-LO OI=220 ASK=$0.35
SELL CALL DEC-70.00 XTQ-LN OI=67 BID=$0.90
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$70.60
__________________________________________________________________
JCP - J. C. Penney $34.59 *** Sell-Off In Progress! ***
J. C. Penney (NYSE:JCP) is a department store, catalog and
e-commerce retailer. JCP operates over 1,000 JCPenney stores
throughout the United States and Puerto Rico, and 59 Renner
department stores in Brazil. JCPenney Catalog, including
e-commerce, is a catalog merchant of general merchandise, and
JCPenney.com is an apparel and home furnishings site on the
Internet. J. C. Penney Corporation, is a contributor to
JCPenney Afterschool Fund, a charitable organization committed
to providing children with after school programs to help them
reach their full potential.
JCP - J. C. Penney $34.59
PLAY (conservative - bearish/credit spread):
BUY CALL DEC-40.00 JCP-LH OI=266 ASK=$0.25
SELL CALL DEC-37.50 JCP-LU OI=1920 BID=$0.55
INITIAL NET-CREDIT TARGET=$0.35-$0.45
POTENTIAL PROFIT(max)=16% B/E=$37.85
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES AND STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.
_________________________________________________________________
NEW - New Century Financial $55.15 *** Earnings Play! ***
New Century Financial Corporation (NYSE:NEW) is one of the
nation's largest specialty mortgage companies, providing first
and second mortgage products to borrowers nationwide through its
operating subsidiaries. It offers mortgage products to borrowers
who generally do not satisfy the credit, documentation or other
underwriting standards prescribed by conventional mortgage lenders
and loan buyers, such as the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. New Century is
committed to serving the communities in which it operates with
fair and responsible lending practices. Earnings are due on or
about 11/4/04.
NEW - New Century Financial $55.15
PLAY (very speculative - neutral/debit straddle):
BUY CALL NOV-55.00 NEW-KK OI=2462 ASK=$2.40
BUY PUT NOV-55.00 NEW-WK OI=7821 ASK=$2.35
INITIAL NET-DEBIT TARGET=$4.60-$4.70
INITIAL TARGET PROFIT=$1.75-$2.50
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*****************************************
PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS
*****************************************
All of these issues have robust option premiums and favorable
technical indications. However, current news and events, as
well as market sentiment, will have an effect on these stocks
so review each position thoroughly and make your own decision
about its outcome.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/29/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The following summary is a reasonable account of the positions
previously offered in this section. However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted. In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed. In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.
MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE
The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position. This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations. Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NAKED PUTS
Stock Strike Strike Cost Current Gain Max Simple
Symbol Month Price Basis Price (Loss) Yield Yield
WRLS NOV 7.50 7.20 6.87 (0.33) 0.00% 0.00%
SIMG NOV 12.50 12.10 13.70 0.40 5.95% 3.31%
NCRX NOV 25.00 24.30 25.63 0.70 5.52% 2.88%
ANF NOV 32.50 32.10 39.18 0.40 2.78% 1.25%
SNDA NOV 22.50 21.85 30.26 0.65 7.78% 2.97%
PMTI NOV 20.00 19.15 20.49 0.85 9.23% 4.44%
IDBE NOV 12.50 12.15 17.30 0.35 6.44% 2.88%
BVF NOV 17.50 17.05 18.72 0.45 5.40% 2.64%
USG NOV 17.50 16.90 22.39 0.60 6.84% 3.55%
SNDA NOV 25.00 24.50 30.26 0.50 5.67% 2.04%
ENER NOV 15.00 14.40 16.84 0.60 8.11% 4.17%
DRIV NOV 25.00 24.35 33.30 0.65 6.81% 2.67%
PLMD NOV 30.00 29.55 35.00 0.45 3.33% 1.52%
CNCT NOV 22.50 22.10 26.88 0.40 4.68% 1.81%
CCBI NOV 22.50 21.90 22.43 0.53 4.87% 2.74%
EYET NOV 35.00 34.45 42.44 0.55 5.17% 1.60%
USG NOV 17.50 17.15 22.39 0.35 6.12% 2.04%
RIGL NOV 22.50 21.85 24.00 0.65 8.14% 2.97%
MCD NOV 27.50 27.15 29.15 0.35 2.99% 1.29%
FARO NOV 20.00 19.60 24.85 0.40 5.67% 2.04%
NOVN NOV 20.00 19.60 22.55 0.40 4.88% 2.04%
VRSN NOV 20.00 19.65 26.83 0.35 4.40% 1.78%
ENER NOV 17.50 17.05 16.84 (0.21) 0.00% 0.00%
SSNC NOV 20.00 19.55 23.64 0.45 5.71% 2.30%
CKFR NOV 30.00 29.40 31.00 0.60 4.91% 2.04%
OSTK NOV 35.00 34.60 54.14 0.40 4.10% 1.16%
GBBK NOV 30.00 29.40 31.25 0.60 5.01% 2.04%
KRON NOV 45.00 44.50 49.05 0.50 3.10% 1.12%
DITC NOV 20.00 19.70 22.94 0.30 5.29% 1.52%
MRVL NOV 23.75 23.35 28.57 0.40 5.59% 1.71%
AGIX NOV 20.00 19.70 29.99 0.30 4.50% 1.52%
AFCO NOV 20.00 19.55 23.19 0.45 6.68% 2.30%
TSRA NOV 25.00 24.70 27.93 0.30 4.18% 1.21%
SRDX NOV 25.00 24.50 26.85 0.50 5.79% 2.04%
ELN NOV 22.50 22.05 25.80 0.45 6.53% 2.04%
XMSR NOV 30.00 29.45 32.32 0.55 5.48% 1.87%
ENDP NOV 20.00 19.55 21.80 0.45 6.72% 2.30%
LNG NOV 20.00 19.45 24.84 0.55 8.61% 2.83%
USG NOV 20.00 19.50 22.39 0.50 8.45% 2.56%
EDS NOV 20.00 19.65 21.27 0.35 5.49% 1.78%
MANT NOV 17.50 17.05 21.62 0.45 9.65% 2.64%
NTMD NOV 17.50 17.25 24.30 0.25 6.12% 1.45%
A NOV 22.50 22.10 25.06 0.40 5.86% 1.81%
SCHN NOV 26.60 26.15 28.25 0.45 5.81% 1.72%
CYTC NOV 25.00 24.60 26.09 0.40 5.27% 1.63%
Energy Conversion Devices (NASDAQ:ENER) at the $17.50 strike,
Palomar Medical (NASDAQ:PMTI), and Telular (NASDAQ:WRLS) are
among the most obvious "early-exit" candidates. The position
in Epiq Systems (NASDAQ:EPIQ) was not initiated due to a "gap
down" in the price of the stock on the day after the play was
published. A number of issues remain on the "watch" list.
NAKED CALLS
Stock Strike Strike Break Current Gain Max Simple
Symbol Month Price Even Price (Loss) Yield Yield
BRCM NOV 35.00 35.35 27.05 0.35 4.44% 0.99%
LLTC NOV 40.00 40.60 37.88 0.60 3.74% 1.48%
SINA NOV 35.00 35.35 33.50 0.35 4.56% 0.99%
LRCX NOV 25.00 25.40 26.03 (0.63) 0.00% 1.57% *
IVX NOV 20.00 20.75 18.10 0.75 9.51% 3.61%
PLMO NOV 40.00 40.45 28.97 0.45 5.62% 1.11%
SLXP NOV 20.00 20.65 16.03 0.65 8.83% 3.15%
AOC NOV 25.00 25.25 20.41 0.25 3.93% 0.99%
CVH NOV 50.00 50.60 40.90 0.60 4.46% 1.19%
ACF NOV 20.00 20.70 19.40 0.70 8.31% 3.38%
DSPG NOV 22.50 22.85 19.83 0.35 6.23% 1.53%
HYSL NOV 40.00 40.85 40.13 0.72 5.29% 2.08% *
RNR NOV 50.00 50.65 46.82 0.65 3.51% 1.28%
X NOV 40.00 40.25 36.72 0.25 3.49% 0.62%
IIVI NOV 35.00 35.65 34.24 0.65 6.51% 1.82%
GIVN NOV 40.00 40.45 32.24 0.45 5.86% 1.11%
UCI NOV 30.00 30.70 29.58 0.70 13.93% 2.28%
USPI NOV 35.00 35.45 35.01 0.44 5.06% 1.27% *
ARW NOV 25.00 25.40 23.96 0.40 5.82% 1.57%
TACT NOV 30.00 30.50 25.02 0.50 10.16% 1.64%
Positions in Lam Research (NASDAQ:LRCX), Hyperion Solutions
(NASDAQ:HYSL), and United Surgical (NASDAQ:USPI) have been
closed to limit potential losses. Positions in the Insurance
sector including RenaissanceRe Holdings (NYSE:RNR) and UCI
(NASDAQ:UICI), as well as Ii-Vi (NASDAQ:IIVI), are on the
"watch" list.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions. As with
any new investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook. In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!
The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position. The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold. Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times. In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own! Why? Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio. It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW NAKED-PUT CANDIDATES
Stock Last Option Option Last Open Cost Days Simple Max
Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield
FARO 24.85 NOV 22.50 QEJ-WX 0.40 164 22.10 20 2.8% 7.6%
USG 22.39 NOV 20.00 USG-WD 0.30 9147 19.70 20 2.3% 6.6%
NTAP 24.47 NOV 22.50 NUL-WX 0.35 1527 22.15 20 2.4% 6.5%
TSRA 27.93 NOV 22.50 TJQ-WX 0.20 291 22.30 20 1.4% 5.1%
DOX 25.25 NOV 22.50 DOX-WX 0.25 996 22.25 20 1.7% 5.0%
JNPR 26.61 NOV 25.00 JUX-WE 0.30 7762 24.70 20 1.8% 4.9%
ROST 26.27 NOV 25.00 REQ-WE 0.30 176 24.70 20 1.8% 4.8%
VAR 40.15 NOV 37.50 VAR-WU 0.35 659 37.15 20 1.4% 3.9%
Abbreviations:
LB-Last Bid price, OI-Open Interest, CB-Cost Basis (or break-even
point), DE-Days to Expiry, SY-Simple Yield (monthly basis without
margin), MY-Maximum Yield (monthly basis with margin), TS-Target
Shoot.
_________________________________________________________________
FARO - FARO Technologies $24.85 *** Next Leg Up? ***
FARO Technologies (NASDAQ:FARO) designs, develops, markets and
supports portable, software-driven, 3-D measurement systems used
in a broad range of manufacturing and industrial applications.
The firm's principal products are the Faro-Arm Control Station
and Control Station Pro (articulated measuring devices), the Faro
Laser Tracker and Laser Control Station and their companion Soft
Check Tool and CAM2 software, respectively, which provide for
computer-aided design (CAD)-based inspection and factory-level
statistical process control. Faro's products bring precision
measurement, quality inspection and specification conformance
capabilities, integrated with CAD software, to the factory floor.
FARO - FARO Technologies $24.85
NOV 22.50 QEJ-WX LB=0.40 OI=164 CB=22.10 DE=20 TY=2.8% MY=7.6%
_________________________________________________________________
USG - USG Corporation $22.39 *** Uptrend Intact! ***
USG Corporation (NYSE:USG) is engaged in the manufacture and
distribution of building materials. Its business operations
are organized into three operating segments: North American
Gypsum, Worldwide Ceilings and Building Products Distribution.
North American Gypsum manufactures and markets gypsum sheetrock
and related products in the United States, Canada and Mexico.
Worldwide Ceilings manufactures and markets ceiling tile in the
United States and ceiling grid in the United States, Canada,
Europe and Asia. Building Products Distribution distributes
gypsum wallboard, drywall metal, joint compound and other
building products throughout the United States.
USG - USG Corporation $22.39
NOV 20.00 USG-WD LB=0.30 OI=9147 CB=19.70 DE=20 TY=2.3% MY=6.6%
_________________________________________________________________
NTAP - Network Appliance $24.47 *** Entry Point? ***
Network Appliance (NASDAQ:NTAP) is a provider of enterprise
network storage and data management solutions. Its system
products consist of fabric-attached storage appliances, also
known as filers, NearStore systems, NetCache content delivery
appliances, the Data ONTAP operating system, Write Anywhere
File Layout file management system, data management and content
delivery software and NetApp Global Services. The firm also
markets appliance- and server-based software and develops
software support for a number of industry-standard protocols.
The NetCache product line includes support for proxy and
caching of standard Web protocols, including domain name
service, file transfer protocol and hypertext transfer
protocol.
NTAP - Network Appliance $24.47
NOV 22.50 NUL-WX LB=0.35 OI=1527 CB=22.15 DE=20 TY=2.4% MY=6.5%
_________________________________________________________________
TSRA - Tessera Technologies $27.93 *** Pure Premium-Selling! ***
Tessera Technologies develops semiconductor-packaging technology
that meets the ongoing demand for miniaturization and increased
performance of electronic products. It licenses its technology
to customers, enabling them to produce semiconductors that are
smaller and faster and incorporate more features. These chips
are utilized in electronics products, including digital cameras,
MP3 players, personal computers, personal digital assistants,
video game consoles and wireless phones. The firm's technology
enables multiple semiconductors to be stacked vertically in a
single three-dimensional, multi-chip package that occupies almost
the same circuit board area as a chip-scale package.
TSRA - Tessera Technologies $27.93
NOV 22.50 TJQ-WX LB=0.20 OI=291 CB=22.30 DE=20 TY=1.4% MY=5.1%
_________________________________________________________________
DOX - Amdocs $25.25 *** More Business From Cingular? ***
Amdocs Limited (NYSE:DOX) is a provider of software products
and services to major communications companies across North
America, Europe and the rest of the world. Its products and
services provide an integrated approach to customer management,
which the Company refers to as Integrated Customer Management.
Its Integrated Customer Management product offerings consist
primarily of billing and customer relationship management
systems, which Amdocs refers to, collectively, as Customer
Care and Billing Systems. Its portfolio also includes a range
of directory sales and publishing systems for publishers of
both traditional printed directories and electronic Internet
directories.
DOX - Amdocs $25.25
NOV 22.50 DOX-WX LB=0.25 OI=996 CB=22.25 DE=20 TY=1.7% MY=5.0%
_________________________________________________________________
JNPR - Juniper Networks $26.61 *** Optimistic Outlook! ***
Juniper Networks (NASDAQ:JNPR) transforms the entire business of
networking by converting a commodity: bandwidth, into a dependable,
secure, and highly valuable corporate asset. Founded in 1996 to
meet the stringent demands of service providers, Juniper Networks
is now relied upon by the world's leading network operators, such
as government agencies, research and education institutions, and
information-intensive enterprises as the foundation for stable,
uncompromising networks.
JNPR - Juniper Networks $26.61
NOV 25.00 JUX-WE LB=0.30 OI=7762 CB=24.70 DE=20 TY=1.8% MY=4.9%
_________________________________________________________________
ROST - Ross Stores $26.27 *** On The Rebound? ***
Ross Stores (NASDAQ:ROST) operates a chain of off-price retail
apparel and home accessories stores that target value-conscious
men and women between the ages of 25 and 54, primarily in middle
income households. The company offers brand-name and designer
merchandise at low everyday prices. Ross has over 500 stores,
located predominantly in community and neighborhood shopping
centers in populated urban and suburban areas. In the last year,
Ross opened 66 new Ross Dress For Less stores and closed five
locations. The company's stores are located in 25 states.
ROST - Ross Stores $26.27
NOV 25.00 REQ-WE LB=0.30 OI=176 CB=24.70 DE=20 TY=1.8% MY=4.8%
_________________________________________________________________
VAR - Varian Medical $40.15 *** Target-Shoot An Entry! ***
Varian Medical (NYSE:VAR) designs and produces integrated systems
of equipment and software for treating cancer with radiation, as
well as cost-effective x-ray tubes for radiation equipment makers
and replacement x-ray tubes and imaging subsystems. The company's
operations are grouped into two segments: Oncology Systems and
X-Ray Products. Oncology Systems designs, manufactures, sells and
services hardware and software products for radiation treatment of
cancer, while X-Ray Products is involved in the design and building
of subsystems for diagnostic radiology. GTC, which is Varian's
research facility, also manufactures and sells its brachytherapy
products and services.
VAR - Varian Medical $40.15
NOV 37.50 VAR-WU LB=0.35 OI=659 CB=37.15 DE=20 TY=1.4% MY=3.9% TS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
BEARISH PLAYS - NAKED CALLS
Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies. Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.
WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!
The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position. The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold. Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times. The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio. It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner. Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is
no more than twice the original premium received from the sold
option.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
ASKJ - Ask Jeeves $25.78 *** New Downtrend Underway? ***
Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search,
providing consumers with authoritative and fast ways to find
relevant information to their everyday searches. Ask Jeeves
deploys its search technologies on Ask Jeeves (Ask.com and
Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com).
In addition, to its internet sites, Ask Jeeves syndicates its
monetized search technology and advertising units to a network
of affiliate partners. The company is based in Emeryville,
California, with offices in New York, Boston, New Jersey, Los
Angeles, London and Dublin.
ASKJ - Ask Jeeves $25.78
PLAY (sell naked call):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL CALL NOV 30 AUK-KF 5372 0.35 30.35 8.3% 1.2%
_________________________________________________________________
CBT - Cabot $34.08 *** Post-Earnings Slump! ***
Cabot Corporation (NYSE:CBT) manufactures and sells carbon black,
fumed metal oxides, inkjet colorants, tantalum and other related
products and cesium formate drilling fluids. The company is
organized into three business segments: the Chemical, Supermetals
and Specialty Fluids. The Chemical segment is mainly comprised
of the carbon black, fumed metal oxides, inkjet colorants and
aerogels product lines. Supermetals produces tantalum, niobium
and their alloys for the electronic materials and refractory
metals industries. Specialty Fluids produces cesium formate as
a drilling and completion fluid for use in high-pressure and
high-temperature oil and gas well operations.
CBT - Cabot $34.08
PLAY (sell naked call):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL CALL NOV 35 CBT-KG 5 0.50 35.50 5.8% 1.4%
_________________________________________________________________
NVTL - Novatel Wireless $20.75 *** A Big "Down" Day! ***
Novatel Wireless (NASDAQ:NVTL) is a provider of wireless
broadband access solutions for the mobile communications
market. The company's range of products includes wireless
data modems and software for laptop personal computers,
embedded wireless modules for OEMs, and ruggedized wireless
data modems for public safety and telemetry applications.
Through the integration of hardware and software, Novatel's
products are designed to operate on most global wireless
networks, and provide mobile subscribers with secure access
to data, including corporate, public and personal information
through the Internet and enterprise networks.
NVTL - Novatel Wireless $20.75
PLAY (sell naked call):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL CALL NOV 25 NVU-KE 4102 0.20 25.20 7.0% 0.8%
************************Advertisement*************************
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* Trailing stops based on the option price or the stock price
* Also place Contingent, Stop Loss, and "One Cancels Other" orders
* Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees!
Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
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